The total value of taxable payments withdrawn flexibly from pensions since April 2015 when the pension freedoms were introduced is £72.2 billion, according to HMRC’s annual update to private pensions statistics.
There have been some increases in the value of payments withdrawn in the first two quarters of 2023. Between 1st January 2023 and 31st March 2023 there was a 18% increase in the value of payments withdrawn in this quarter comparted to the same quarter in 2022. Meanwhile there was 17% increase in the value of payments withdrawn between 1st April and 30th June 2023.
In Q2 2023 567,000 people withdrew a total of £4 billion. What’s more, in 2022/23 £12.9 billion was withdrawn, up from £11.2 billion in 2021/22 (£9.2bn in 2020/21).
Jon Greer, head of retirement policy at Quilter said that this might be due to increased energy bills and food prices soaring with pensioners “feeling that they need more each month just to get by”. He said:
“The recent pension figures coming out of HMRC provide a window into why Hunt felt that it was necessary to drastically change the annual allowance threshold and look to abolish the lifetime allowance altogether.
It is worth bearing in mind that the Lifetime Allowance tax charge was originally only supposed to impact 5,000 individuals yet due to reductions in the lifetime allowance and the freezing of the allowance it was now penalising far more than that each year.”
The figures show that, in 2021/22, a complex tax system led to a growing number of individuals facing challenges, with surges in annual and lifetime allowance charges.
Also commenting on the data, Nick Flynn, retirement income director, Canada Life said:
“The floodgates have well and truly opened as record amounts are being stripped from pensions. While there is no need hit the panic button, I hope these people have a backup plan to be able to generate a wage in retirement.
The current cost-of-living crisis may be driving some of this behaviour, and no doubt pent up demand following the pandemic will also be behind these record withdrawals. It is important as an industry for us to continue to focus on providing support to ensure people are helped to make the best decisions, including phased withdrawals to make sure they are as tax efficient as possible.”
Sarah Coles, head of personal finance, Hargreaves Lansdown said “don’t panic, these figures are nowhere near as dismal as they look”. She stated that the number of people making flexible withdrawals will always rise every year, because “more new people reach the age at which they can draw from their pension, and the pool of pensioners grows”. She continued:
“It means we need to look at the average withdrawal. Between April and June this year we withdrew an average of £7,143 per person. This is very similar to the same period a year earlier (£7,067) and the year before that (£7,241) and is actually significantly down from the same period in 2019 – before the pandemic – when it was £8,297.
The other positive to note is that in the three-month period, the average person took 2.36 payments. It means a significant proportion are taking sensible, regular payments, rather than raiding their pensions in a panic. This figure has remained relatively stable in Q2 of the past five years.”