The latest stats show £33bn ($43bn, €39bn) has been withdrawn from retirement pots since pension freedoms were introduced in 2015 by former chancellor George Osborne.
HM Revenue and Customs (HMRC) data showed £2.2bn was withdrawn from pensions flexibly during Q4 2019.
This is an 18% increase from £1.9bn in the same quarter in 2018.
This brought total withdrawals for 2019 to £9.4bn, a record year:
- £7.8bn in 2018,
- £6.5bn in 2017,
- £5.7bn in 2016.
Combat the tsunami of challenges
“Figures from HMRC tell a narrative around pensions freedoms that George Osborne would be happy with – it is working as it supposed to,” Ian Browne, pensions expert at Quilter, said.
“Concerns that pension freedoms signaled the apocalypse of responsible retirement saving and income in the UK now seem over the top.
“However, it has not been a straight path for pension freedoms, and we are still trying to combat the tsunami of challenges that this new era has presented.”
Tom Selby, senior analyst at AJ Bell, said: “While it’s hard to draw firm conclusions about the pension freedoms without knowing people’s other assets, income sources and individual circumstances; nothing we have seen suggests savers are broadly behaving in anything but a responsible manner.”
Andrew Tully, technical director at Canada Life, said: “The genie is well and truly out of the bottle.”
The fourth quarter of last year saw 327,000 individuals make a withdrawal from their pensions, a 24% increase from 264,000 in the same period in 2018.
The average figure withdrawn per individual in Q4 2019 was £6,800, which was a 5% drop from £7,200 a year ago.
Since reporting became mandatory in Q2 2016, average withdrawals have been falling steadily, with peaks in the second quarter of each year becoming a noticeable trend.
Colin Dyer, head of private client management at Standard Life’s financial planning arm 1825, said: “It’s clear that people remain eager to take advantage of the flexibility that pensions now offer.
“However, what the figures do show is a downward trend in the values people are withdrawing. This continues to quell fears that people are cashing in their entire life savings and running off into the sunshine.
“That said, the risk of running out of money in retirement remains, so prudence and good planning are always important.”
Worries and doubts
The pension freedoms were designed to give consumers greater choice on how to decumulate their retirement pots, but some people are still unsure about what to do.
Fidelity International surveyed 2,000 UK adults and found 23% of women were anxious when faced with the choices of how to take their pension, compared to 16% of men.
“Too many women and men still feel anxious and overwhelmed when it comes to the choices around how to access their retirement income,” Maike Currie, investment director for Fidelity International, said.
“A key takeaway was that pension freedoms are not really a freedom unless the individual feels well-enough informed to make their decision.
“In order to bring about a better pensions outlook for all, we need to ensure that advice is accessible before the point where pensions are being drawn down.
“Likewise, more provision needs to be made for advice at the point where women are still accumulating their retirement savings.”
Planning can ease fears
Steven Cameron, pensions director at Aegon, added: “With people living longer, proper retirement planning is needed to safeguard people’s wealth, particularly if choosing to use flexible drawdown in retirement.
“Here, retirees remain invested in the stockmarket raising concerns over the impact a major fall could have on their retirement prospects, including the risk of running out of money if they withdraw too much too soon.
“Seeking professional financial advice can give peace of mind that your financial affairs are being taken care of, whether that’s about having enough secure income to cover the basics, taking a sustainable regular income, or investing wisely.”