The pension freedom tax rules allow members of defined contribution pension schemes to access their pension savings early. This is provided that they have reached the normal minimum pension age, which is currently 55. The July 2019 Official Statistics showed that in this quarter (Q2 2019), £2.75 billion was withdrawn form pensions flexibly. In this quarter, a record 336,00 individuals withdrew form their pensions - up 27 per cent since the 2019 second quarter.
The amount is a 21 per cent increase from £2.27 billion in the same quarter last year.
In total, since the changes have come into effect back in 2015, £28 billion has been flexibly withdrawn from pensions, HMRC said.
Total withdrawals in the second quarter are typically larger than in other quarters, due to some taxpayers planning their withdrawals around the start of the new tax year.
HMRC said that while this has previously been driven by larger value withdrawals, this year, it’s driven by the increased numbers of people making withdrawals.
Tom Selby, senior analyst at AJ Bell, commented: “Four years on from the introduction of the pension freedoms reforms and we are finally getting a clearer picture of how people are using the flexibilities.
“On the whole the available evidence points to savers acting in a sensible manner, taking steady incomes from their funds rather than raiding their nest eggs and splurging in a way which could leave them struggling in later life.
“AJ Bell’s own research on this subject also suggests, in the main, withdrawals are being managed in a sustainable way.
Pension flexibility withdrawals total £28 billion since changes came into effect in 2015 (Image: GETTY)
When taking money out of pensions, you reduce the amount you can contribute again and still benefit from tax relief.
Tim Holmes, Managing Director at Salisbury House Wealth
“Of course there are no shortages of potential headwinds threatening investors, from the increasing threat of a no deal Brexit to the ongoing tensions between Donald Trump and China.
“Anyone who remains invested in the stock market and is drawing an income in retirement needs to be mindful of these risks and consider the impact a severe drop in markets – and any corresponding fall in the value of their fund - could have on their future spending plans.
“This risk is particularly prevalent where savers are taking large withdrawals in the early years of retirement, which is why it is critical people using the pension freedoms are engaged