Record numbers using pension freedoms but withdrawal amounts falling: HMRC

Since the pension freedoms were introduced four years ago, over 1.1 million people have taken flexible payments totalling £25.62bn, with a record 539,000 having taken a payment in the last 12 months.

Today's figures show a 28% year-on-year rise in people using flexible payments.

Despite this rise, the average amount being withdrawn has fallen year-on-year from £8,430 in the first year to £3,713 in 2017/18 and £3,358 this year.

Steven Cameron, pension director at Aegon, commented: “The freedoms marked a radical change in the retirement landscape which is now almost unrecognisable from where it was before inception in 2015. Individuals now have much more control over their pension savings including allowing those looking for a more gradual transition into retirement the chance to work, combining reduced hours with part pension as they approach or move beyond traditional retirement age.

“While the number of payments made is also at a record high, the average amount being withdrawn has fallen year on year since inception. In the first year, the average value was £8,430. This had fallen to £3,713 for 2017/18 and has fallen again to £3,358 in 2018/19 suggesting individuals are exercising restraint over how much to take out.

“This is encouraging as with greater flexibility comes greater responsibility and the freedoms have also introduced an increased risk. Historically, retirees would receive a fixed income which would last them for the rest of their life, but now many are responsible for investing appropriately and ensuring they do not overspend, risking their pension pot running dry part-way through retirement. The more people who take advantage of pension freedoms, the greater is the need for access to professional financial advice.”

Steve Wilkie, managing director of Responsible Life, added: “Pensioners’ use of drawdown is rocketing but it could be leading them towards trouble further down the road. Almost a third more retirees have used flexible payments year on year, suggesting the over-55s have become more aware of their options.

“Drawdown can have beneficial impacts in the short-term but it inevitably impacts their long term financial position, and will have implications for their income as they grow older.

“Flexible payments are nothing new, but the concern is this greater uptake points to a degree of financial stress that won’t come into focus for a number of years.”