Pension withdrawals up 19% in Q1

The total value of flexible withdrawals from pensions since flexibility changes in 2015 has now exceeded £35bn.

Q1 2020 saw 348,000 individuals withdraw from pensions, a 23% increase from 284,000 in the same quarter of the previous year. There has also been an increase in the number of individuals withdrawing compared to the previous quarter Q4 2019 (327,000) – which reflects normal seasonal patterns.

The average amount withdrawn per individual in Q1 2020 was £7,100, falling by 3% from £7,300 in Q1 2019. Since reporting became mandatory in Q2 2016, average withdrawals have been falling steadily and consistently, with peaks in the second quarter of each year becoming a noticeable trend.

Ian Browne, retirement expert at Quilter, commented: “It is normal to see an increase in the number of people withdrawing from their pensions in the first quarter of the year as it edges toward the new tax year. In the first quarter of the new decade we have seen a substantial 18% increase in the amount withdrawn, bringing the total to over £35bn. However, even for normal trends the increase is substantially more than we have seen in the past. For instance from Q4 2018 to Q1 2019 we saw only an 8.4% increase in the amount withdrawn.

“It may be volumes increased as people, nervous about stock market volatility or Covid-19 in general started withdrawing more money. Next quarter’s figures should further illuminate the picture and in fact we could see the numbers go either way. People may withdraw less from their pensions as their expenses have declined or we may see that people are tapping into their pensions more as they are looking to fill a gap left due to to being furloughed or some other unforeseen circumstances. This combined with the recent negative investment performance can wreak havoc on a pension.

“It is vital if you do decide to use your pension more than previously planned that you think about the long term consequences. It is not just that sum that you won’t have later on down the line, compound interest means the growth of your pot will also deplete. Getting trusted financial advice is crucial to ensure your actions today don’t adversely impact your later retirement.

“Encouragingly, the data show that during Q1 we saw a 32% increase in individuals withdrawing funds, so we are seeing more people taking smaller but more frequent payments and using pension freedoms responsibly.”