Record 348,000 people withdrew money from pensions in first quarter of 2020
30 April 2020, 14:44
The quarterly total was up by 23% on a year earlier, HM Revenue and Customs figures show.
Pension savers are being urged to consider the long-term damage they risk doing by withdrawing too much from their retirement pots – as figures show record numbers were dipping into their savings earlier this year.
The Institute for Fiscal Studies (IFS) warned that the recent stock market falls could mean some people are permanently worse off in retirement than they had expected to be.
More than £35 billion has now been withdrawn from pots since new flexibilities were introduced in 2015, figures from HM Revenue and Customs (HMRC) show.
HMRC said that in the first quarter of 2020, 348,000 people made flexible withdrawals from their pensions – a 23% increase on the same period a year earlier.
It was the highest quarterly total since records started in 2015.
The average amount withdrawn per person in the first quarter of 2020 was £7,100, slightly down on £7,300 typically in the first quarter of 2019.
The pension freedoms allow people with defined contribution (DC) pensions to access their savings flexibly from the age of 55, subject to their marginal rate of income tax.
Among the options, people can take all their pension in one go or draw it down in chunks over time, leaving the remainder of the pot to grow.
HMRC’s information only includes flexible payments that are taxable.
It said normal seasonal patterns mean withdrawals typically increase in the first three months of the year before peaking in the second quarter when the new tax year starts.
The IFS said the recent fall in stock markets has reduced the wealth of those with DC pension pots invested in equities.
It warned that if equity prices do not recover, or do not do so by the time people need to draw on the savings they have built up, then people with pensions invested in equities will either need to make do with less in their retirements, delay their retirement, or save more to fill the gap.
It said people who are already retired and are drawing down pension savings, rather than taking an annuity, will also be hit – and people making flexible withdrawals from pensions invested in equities will either have to scale back what they take out or see their pension pot permanently reduced as a result of the crisis.
David Sturrock, a senior research economist at IFS, said: “The recent fall in the stock market is likely to hit the future retirement incomes of a lot of people.
“It will also hit many pensioners already relying on defined contribution pensions. Since 2015 they have not had to take an annuity and many are instead drawing down income from their retirement pots.
“They are likely to be permanently worse off in retirement than they expected even if the stock market returns to where it would have been, and much worse off if it does not.”
Nathan Long, interim head of policy at Hargreaves Lansdown said: “It is important to note that the number of people using pension freedom is being added to every year, as successive cohorts reach retirement, so you’d expect the withdrawal values to increase year on year; these numbers are in line with that trend.
“However, investors should be especially mindful at this time of cashing in investments after significant market falls and for some, it may make sense to hold back until the present economic turmoil subsides.
“We’ve seen some early evidence of drawdown investors scaling their withdrawals back slightly during the coronavirus-inspired market falls.
“If this proves to be a false dawn and withdrawals continue to rise through the second quarter of 2020, that could be a warning sign of long-term damage being done to people’s retirement savings.”
Tom Selby, a senior analyst at AJ Bell, said: “Independent research commissioned by AJ Bell suggests one in 10 over-55s have already accelerated plans to access their pension as a result of Covid-19. Anyone going down this route needs to think carefully about the sustainability of their retirement income strategy.
“Others will be considering deferring retirement or reducing their withdrawals in order to avoid ‘selling on the dip’ and to ensure they don’t risk running out of money in later life.
“In both cases the key message to investors is to stay calm and make sure you understand the long-term impact of the decisions you are taking today.”
Alistair McQueen, head of savings and retirement at Aviva said: “Aviva has been encouraging its customers to keep calm, focus on the longer-term and seek help from services such as the Government’s Pension Wise service.”