Hundreds of thousands of savers have cashed in £9.2bn from their pension pots since pension freedoms were introduced in April 2015, new figures reveal whilst personal savings continue to shrink.
The latest statistics from HM Revenue & Customs reveal 162,000 individuals accessed £1.56bn from their pension pots in the last three months of 2016. At the same time, research last month suggests that personal savings of older people are shrinking dramatically. “This perfect storm of shrinking savings combined with the new freedoms to take money out of pension pots, is likely to accelerate the ‘spend now, pay later’ attitude to retirement savings and will fuel the thirst for later retirement or combining work with retirement,” said Chris Ball of TAEN/ Shaw Trust this week.
Pension freedom rules were introduced by former chancellor George Osborne and allow anyone over 55 total access to their pension pot.
Caution is being urged by analysts in considering whether this result is a “success” however. Gareth James, pension expert at AJ Bell, said, “It doesn’t tell us what people are doing with that money. Are they using it to provide a regular and sustainable income as pensions are designed to do, or are they spending it too quickly and likely to run out of money too quickly?
“It is important that the government carries out a more detailed analysis of how the pension freedoms are being used before any realistic assessment of their success can be made.”
Sally Merritt, of Saga Investment Services, said that while people typically withdraw small amounts – in the region of £6,000 – people should be cautious and not take money from their pension pots without taking advice first.
“They need to plan for an alternative source of income in retirement. Taking money out of the pension pot could lead to people getting nasty surprises on their income tax bills – especially if they take all the money out in one go, rather than in phases over multiple tax years.”
“Clearly, increased choice comes with increased complexity,” commented Chris Ball.