Pension drawdowns are becoming “increasingly common”, according to Just Group’s Stephen Lowe, as the latest HM Revenue & Customs (HMRC) figures show £2bn was withdrawn from pension schemes in the third quarter of 2018.
The £2bn drawn down between July and September means £5.9bn has been withdrawn through 1.66 million payments so far this year. As a result, 2018 is on track to exceed 2017, when 1.67 million withdrawals were made to cash in a total £6.54bn, on both counts.
In the third quarter of 2018, some 258,000 people made 585,000 withdrawals, according to HMRC statistics.
Just Group group communications director Stephen Lowe said the figures were “growing evidence that drawdown, particularly non-advised drawdown, is becoming increasingly common for those entering retirement”.
He added: “It is evident that trends are emerging in a post-freedoms landscape. While the ‘dash for cash’ has not yet materialised as many feared, the data provides clear evidence that people are changing their behaviour.”
Investing in a pension drawdown product is “not for the faint-hearted”, Lowe continued, adding: “It’s complex and can be risky. So we should be concerned the FCA announced people did not get financial advice on nearly a third (31%) of pots that entered drawdown, and sales without advice reached a post-freedoms high in the second quarter of 2018.
“Many people are sleepwalking into drawdown without the benefit of regulated financial advice and often without the benefit of free and impartial help from the government-backed PensionWise service.”
‘Cash is king’
Canada Life pensions technical director Andrew Tully said cash now appeared to be “king” as people continued to “rush to withdraw money from pensions”.
“Typically smaller pensions are being fully withdrawn, while people with larger pensions are making multiple withdrawals in a tax year, suggesting they are treating their pension more like a bank account,” he continued.
“These pensions are also being accessed for the first time before state pension age. This combination of taking multiple withdrawals in a tax year at earlier ages, when people are still likely to be earning income from work, means many people are likely to be paying more tax than if they took withdrawals more gradually.”