There has been a 21 per cent increase in the amount of funds being withdrawn from individuals’ pensions in the second quarter of this year, as the number of withdrawals made hit a new record.
Data published by HM Revenue & Customs today (July 31) showed £2.75bn was withdrawn from pensions flexibly in the second quarter of 2019, up from £2.27bn in the same period last year.
A record 336,000 savers accessed their pension flexibly in the period, withdrawing £8,200 on average.
This compared with 264,000 dipping into their pension pot in the same period last year, taking an average of £8,600 per person.
However, withdrawal numbers for 2015/16 are not inclusive as HMRC made reporting optional this year to lessen the burden on the industry.
Pension freedom rules mean those aged over 55 no longer have to purchase an annuity to access their pension income but can instead enter drawdown or take a cash amount.
In total, more than £28bn has been withdrawn from schemes since the introduction of the pension freedom rules in 2015. Each person has made on average six withdrawals.
Since 2016, the average amount of withdrawals has fallen steadily, however Q2 traditionally sees a peak.
HMRC stated this was because taxpayers often planned their withdrawals around the start of a new tax year.
The tax authority only collects information on taxable flexible payments, any other tax free funds are not included in the data.
Emma Byron, managing director of Legal & General retail retirement income, said: “Thousands of people are continuing to unlock their pension wealth before retirement, but there is a flipside to the flexibility offered by pension freedoms.
“The responsibility to make decisions about later life income now rests with consumers and many are deciding what to do with their pension without taking advice or guidance.”
Ms Bryon said many consumers were not equipped to access their pensions themselves and that the pensions industry needed to address this issue.
She said: “Rather than product packs, we need to talk to customers about their plans and ambitions for later life.
“Whether people buy an annuity, invest or have a combination of solutions, we need to support them with good guidance and encourage them to seek advice. This will help them to make informed decisions about their pensions so they can enjoy a retirement they aspire to.”
Andrew Tulley, technical director at Canada Life also warned there was a risk people could run out of money if they withdrew too much.
He said: “The risk of running out of money is very real, as there are no mechanisms to prevent people depleting their pots too quickly. Conversely, there is also the risk that people don’t spend enough in retirement for fear of running out of money.
“Without the right financial advice, most people will not achieve the best outcome in retirement.”
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