Almost £33bn withdrawn through pension freedoms following record year

Savers have withdrawn almost £33bn since the introduction of pension freedoms in April 2015, with £9.4bn worth of withdrawals in 2019 alone, new figures from HMRC have revealed.

The final quarter of 2019 saw 327,000 people withdrawing £2.2bn from their pensions, a 24 per cent increase in the number of people compared to Q4 2018, and an 18 per cent increase in the value of the payments made.

This saw the average withdrawal per person reach its lowest point since the pension freedoms were introduced in 2015 (£6,800), and marks a 5 per cent fall compared to Q4 2018 (£7,200).

AJ Bell senior analyst, Tom Selby, explained that this figure had been decreasing over recent years, with more savers taking a “steady income from their fund”.

Aegon pensions director, Steven Cameron, added that the fall was reassuring, as it suggested that savers are “exercising restraint” around how much of their pension they should take as income.

Aviva head of savings and retirement, Alistair McQueen, also highlighted that the number of savers flexibly accessing their pension is likely to increase further.

He said: "In the coming decade a record 9 million people are set to enter the arena of the pension freedoms at age 55.2

"This is more than we can expect to see in any decade that follows. The 2020s are likely to see 'peak pension freedoms'".

However, the continued rise in savers accessing their pension has also seen industry experts urge the government to review pension tax rules, with an increasing number of savers caught out by the annual allowance (AA).

Selby explained that those utilising pension freedoms will have triggered a cut in their AA from £40,000 to just £4,000.

He added: “This draconian measure runs counter to both the pension freedoms and wider shifts in working patterns, with many people now choosing to continue employment after they have accessed their retirement pot.

“The MPAA risks creating particular difficulties for those who access a relatively small fund for a specific purpose – perhaps to help a child on the housing ladder or pay for long-term care for a relative – and need to rebuild their retirement savings afterwards".

Echoing this concern, Canada Life technical director, Andrew Tully, said: “Inevitably the significant amounts of cash leaving the pension system will in many cases be triggering large and often unexpected tax bills.

“But these tax bills don’t appear to be the natural brake on behaviour many predicated when the rules were changed. If anything people are seeking to strip cash from their pensions as rapidly as possible for fear of subsequent rule changes”

Quilter pensions expert, Ian Browne, pointed out that the issues around the AA had already led to “hundreds of millions of pounds” being claimed back from HMRC last year.

The AA has drawn attention after causing issues for NHS members, which has threatened an "exodus of NHS leaders", while research from Royal London also revealed issues around the allowance and those taking ill health early retirement.

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