Flexible Pension Withdrawals Surge
Chris Broome – Chartered Financial Planner
During these challenging financial times, to what extent have pension savers been raiding pension pots?
The latest flexible pension withdrawal figures from HM Revenue & Customs suggest that pensions have not, to date, been the target of raids to help shore up household income.
Marking the fifth anniversary of the pension freedoms which allowed for flexible withdrawals, the data shows 348,000 people withdrew a total of £2.5bn in flexible payments from their pension pots in the first quarter.
It means total flexible pension withdrawals for the 2020/21 tax year totalled £9.81bn, a new record amount.
More than £35bn has been taken flexibly from pension pots in the five years since the pension freedoms were introduced in April 2015.
In the last three months, there was a nearly one-quarter increase in the volume of flexible pension withdrawals, when compared with the same period last year.
The value of flexible withdrawals taken from pension pots also increased by 19%, from £2.06bn in the first quarter of last year, to £2.46bn in the first quarter of 2020.
Since the introduction of pension freedoms in 2015, taking flexible withdrawals from pension pots has become a very popular way of delivering retirement income.
There’s a danger that some retirees might treat their pension pots like a current account, especially during times of economic crisis, raiding pension pots to top-up household finances.
Flexible withdrawals from pensions should be carefully planned, to make the best decisions around taxation and investments, but also to ensure the sustainability of any withdrawals over the long-term.
Another factor to consider during the coronavirus pandemic is the prevalence of scams, with fraudsters targeting pension savers to offer higher returns or tax-free access to their money.
Be very careful before withdrawing cash from your pension pot.
As always, if you’d like to start a conversation about this article, please contact us.
A pension is a long term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
Information is based on current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.