Pensions freedom is six months old – to mark the occasion the Association of British Insurers (ABI) has released its six top facts to emerge from the reforms.
On 6 April, pensions freedom and choice gave over 55s unprecedented access to their defined contribution pension funds.
People can now release funds subject to normal rates of tax and are no longer ushered towards an annuity purchase.
The reforms have opened up the income drawdown market to people with more modest pension funds and seen a surge in people accessing pension pot cash. Annuity sales have dropped significantly while income drawdown has increased.
Several providers have launched guaranteed drawdown products in the wake of the reforms. Some have also moved into non-advised drawdown.
Here are the ABI’s six key facts:
• Interest in the reforms resulted in an 80% increase in calls to pension providers in the first month.
• In the first three months, providers paid out almost £2.5bn in cash and income drawdown payments.
• About 60% of all cash lump sums paid out in the first three months went to people younger than 60, and around 80% to under 65s.
• For the same period, only 42% of income drawdown payments went to the under 65s.
• In 95% of cases where savers accessed a cash lump sum, they withdrew the entire fund.
• The amount of pension freedom cash withdrawn in the first three months represents less than 1% of all pension funds held by over 55s.
ABI director of long-term savings policy Yvonne Braun said: “These figures show that tens of thousands of people have used the new pension freedoms so far to access money they have saved.
“There’s been a lot of activity involving the under 65s, who account for more than four in every five cash lump sum withdrawals, but the majority of people have only been cashing in relatively small pots which account for a tiny proportion of all the money which could have been released.
“This shows that on the whole the British public are taking a sensible approach.
“The changes which came into effect on April 6 revolutionised the world of retirement savings, now the country needs to ensure as many people as possible can make the most of them.
“Giving individuals greater power over their pension pots should encourage more people to put money aside for their retirement.
“Another goal must be to use the tax relief system to better incentivise saving.”