HMRC figures show plunging pension freedom withdrawals

Hope William-Smith reports

A total of 340,000 people withdrew £2.3bn in flexible payments from their pensions in the second quarter of 2020, according to HM Revenue & Customs (HMRC).

Figures released this morning (31 July) showed an 18% decrease year-on-year from the £2.8bn in withdrawals seen in Q2 2019.

The July 2020 flexible payments from pensions statistics also showed a 1% increase in the number of people withdrawing cash compared to the same period in 2019. The average value of each withdrawal has decreased by 18% to £6,700 from £8,200 compared to last year, however.

Aegon pensions director Steven Cameron said savers remain at risk, with money withdrawn during a downturn representing a larger proportion of the pension pot.

“That means the fund doesn’t have the chance to recover its value over time,” he added. “When stock markets have fallen, there is a risk that if people continue to take the same level of income, their pension pot will be depleted too quickly – pensions are designed to provide an income throughout retirement and the more left invested while fund values remain depressed, the more you benefit if stock markets recover.”

Aviva workplace savings manager Laura Stewart-Smith said: “Q2 has always seen a sharp rise in withdrawals – until this year. This is encouraging news – pension decisions made under duress are rarely good ones.”

Canada Life technical director Andrew Tully warned HMRC’s latest figures could still mask “pent-up demand” for cash in the wake of the coronavirus pandemic and the associated economic uncertainty.

“The sharp decline in pension freedom withdrawals isn’t unexpected when the reporting period covers the time when the UK was in full lockdown,” he said. “The ability to spend was limited so the idea of using your pension as a cash machine for larger withdrawals for holidays or home improvements was hardly likely to appeal.
“People may also be wary of the prevailing economic headwinds and holding off from making larger planned purchases right now despite the governments best efforts to encourage us all to spend.”
The figures come within the same week as the government’s announcement of plans to investigate pension freedoms, while the Pensions and Lifetime Savings Association has also called for a solution to support savers in understanding them.
Quilter retirement planning expert Ian Browne said whether pension flexibility “is a good thing depends on who you speak to”.
He continued: “Digging further into HMRC’s data, we have seen a marked difference as a result of the Covid-19 pandemic.
“Along with dealing with the challenges of pension decision making, the government needs to ensure they tackle operation of certain elements of the pensions tax system that are counterintuitive to the principles of freedom and flexibility.”