A total of £6.5 billion was withdrawn through the pension freedoms in 2017, official figures show.
Since April 2015, when the pension freedoms were introduced, individuals aged 55 and over can access their defined contribution (DC) pension savings as they wish, subject to their marginal rate of income tax.
New statistics published by HMRC show that in the fourth quarter of 2017, around 200,000 individuals withdrew money flexibly from their pension pot, and that a total of around £1.5 billion was withdrawn. A total of £6.5 billion was withdrawn through pension freedoms in 2017, nearly £1 billion more than the previous year. Overall since the freedoms were introduced £15.7 billion has been withdrawn.
Steve Webb, director of policy at Royal London, suggests that these figures show that withdrawals under pension freedoms are now settling down to a steady level.
He says: ‘This is very much the new normal and suggests that a significant number of those at or in retirement continue to value the flexibility given by the new legislation. However, it remains important that individuals take expert advice to make sure that the withdrawals from their pension fund are sustainable in the long term’.
Meanwhile, Steven Cameron, pension director at Aegon, cautions that one of the key tests of the freedoms will be how people react if there is a stock market correction.
It also remains to be seen ‘whether they reduce the amount of income they’re taking in the short-run to avoid depleting their fund too quickly,’ says Cameron.
Ian Browne, a pensions expert at Old Mutual Wealth, points out that freedoms came under the microscope last year as the government launched an inquiry through the Work and Pensions Committee.
The work will be wide-ranging, looking at what people are doing with their retirement savings, how they make their choices, the level and quality of guidance and information available to them, and how far their requirements are being met by new pension products.
It will address particular concerns about the increase in scams since the pension freedoms were introduced. Police data shows retirees have been duped out of more than £43 million of retirement savings since the freedoms were introduced.
Browne adds: ‘However, HMRC’s numbers show that people are beginning to grasp the power of freedoms. They are withdrawing less per payment and increasing the frequency of the withdrawals. But there is still a vast knowledge gap surrounding pension freedoms and pensions in general.’
This week the Financial Guidance and Claims Bill went through its second reading and one of the main proposals currently being debated is whether to introduce ‘default guidance’ for those who use the pension freedoms. Those who do not wish to take-up the offer, however, can opt out. But the thinking is that by making guidance the default option pension savers are more likely to shop around and make more informed decisions over their retirement savings.
Stephen Lowe, group communications director at Just Group, says if this measure ever sees the light of day it will help many thousands of people facing the complex decision of what to do with their pension pots.
He adds: ‘The proposals set out do not mandate that people must take guidance. People who have taken regulated financial advice may of course choose to opt out. But for many millions of people, automatically enrolling them into free impartial guidance is a positive step and should lead to them achieving a safer and better outcome.’
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