HM Revenue & Customs (HMRC) data has revealed that between April and June 2022, around 508,000 people took taxable withdrawals from their pension for a total value of £3.6bn ($4.4bn, €4.2bn).
This was a 23% increase in people using pension freedoms compared to Q1 2021-22. Taxable pension withdrawals are payments by those who have already utilised the 25% tax-free lump sum.
The cost-of-living crisis is affecting every household in the UK and is forcing people to look at different ways to cope with skyrocketing bills.
Some took from their savings, others stopped paying into insurance policies to save some money, while as the table below shows many turned to their pensions. If this trend continues, it is set to exceed the number of both people and sums of previous financial years.
Taxable pension withdrawals
|Year||People||Total value of payments|
Sean McCann, chartered financial planner at NFU Mutual, said: “Half a million people took a taxable payment from their pension between April and June, 23% more than the same period last year.
“These figures suggest more people aged 55 and over are tapping into their pension to support either themselves or their family while dealing with the rising cost of living. However, some cash in their pension funds without a clear idea of what they plan to do with the money, often putting it into a bank account.
“Tapping into pension funds can not only trigger an income tax bill, but you also lose the favourable tax treatment on any future growth as well as exposing the money to a potential inheritance tax charge. Although it sounds counter-intuitive, for those that can afford to, pensions should be the last investment they access in retirement, because of the protection they offer from inheritance tax.”