Average pension freedom withdrawals at record lows

Jenna Brown reports

Average pension freedom withdrawals hit a record low of £6,820 between October and December last year – a drop of almost 40% since April 2016, latest official figures show.

Statistics from HM Revenue & Customs (HMRC) revealed 327,000 people made 828,000 withdrawals totalling £.23bn in the last three months of 2019.

Average withdrawals and payments were at record lows, however. The average payment per withdrawal stood at £2,693. A drop of 55% from £5,980 when reporting started in April 2016.

Monthly income drawings have now become the norm, according to Hargreaves Lansdown.

Senior analyst Nathan Long said: “The swift introduction of flexible pension rules has taken a little time to bed down, but now nearly five years on we’re seeing payments falling to record lows. This implies people have settled into managing their money for the long term, with monthly withdrawals becoming more and more common.

“More flexible options do create confusion, so it is important retirees are clear and comfortable on their approach. Finishing work for good can be a great time to seek out advice, even for those who’ve been comfortable in managing their money themselves beforehand. It’s also worth taking advantage of the free Pension Wise service which can give you guidance about your options.”

AJ Bell senior analyst Tom Selby added savers were behaving responsibly.

“It’s taken nearly five years but we are finally getting an idea of what ‘normal’ looks like in a world where people can spend their pension pot as they wish from age 55.

“The average person withdrew under £7,000 flexibly during the latest quarter, a figure which has been trending downwards as more people take a steady income from their fund.”

He added: “We know from Financial Conduct Authority data that over 350,000 pension pots were fully withdrawn at the first time of access in 2018/19, potentially skewing the average per person withdrawal figures upwards. Nine in 10 of these total withdrawals were made by people with relatively small pots worth £30,000 or less.

“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.”

Royal London pension specialist Helen Morrissey said the “dash for cash” of the early days of pension freedom was over.

“While the amount of money being withdrawn from pensions continues to rise it is interesting to note that the average amount withdrawn per individual has fallen in comparison to the same quarter last year.

“This shows that far from being the dash for cash we saw in the early days of pension freedoms people are now using them in a more considered way.”

Standard Life head of global savings policy Jamie Jenkins added that as more people were brought into pension saving via auto-enrolment it was natural there would be a rise in overall withdrawals made from 55. However, he added: “It’s encouraging to see that the average amount people are taking out is reducing, suggesting people are thinking carefully about how to preserve their retirement savings.

“The regulator remains rightly concerned that some people are holding money in cash savings over long periods, so it will be good to see the widespread adoption of investment pathways later this year.

“This will offer those who do not take advice a range of investment solutions to meet their objectives, helping to make investment choices much simpler as they enter into retirement.”