A more cautious approach to pension freedoms?
Posted on Feb 26, 2019
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According to the latest figures from HMRC, in the last quarter of 2018, the amount people withdrew from their pension funds fell to its lowest level since pension freedoms were introduced in 2015. In total in 2018 Q4, 264,000 individuals withdrew payments totalling £1.9 billion – amounting to £7,197 average withdrawals per person.
As a comparison, back in 2015 Q2, far fewer individuals – 84,000 – withdrew £1.6 billion in total. This amounted to an average of £18,571 per person!
The then Chancellor, George Osborne, unveiled pension freedoms in the April 2014 Budget, which were described at the time as the most ‘radical change’ to private pensions for many years, possibly since 1921 when tax relief on contributions came in. In simple terms, anyone aged 55 or over could take the whole amount from their personal pension as a lump sum, generally paying no tax on the first 25% and the rest taxed at their marginal income tax rate.
The Government hailed this move as giving us ‘freedom and choice in pensions’. However, the initial headlines surrounding the announcement suggested that, on hitting 55, the majority of us would cash in our pensions and buy a fast car, become a property investor or head off on a Caribbean cruise…
The statistics now suggest that there was indeed a flurry at the start of individuals cashing in fairly large amounts. The statistics we’ve shared suggest average withdrawals – so many people will have been taking out far bigger amounts than £18,571 four years ago. Since then, while larger numbers of people have been taking advantage of pension freedoms – 628,000 is the highest number recorded thus far – they are withdrawing smaller amounts.
In total, £23.6 billion has now been flexibly withdrawn from retirement pots since the reforms launched. During 2018, £7.8 billion was withdrawn from 2.3 million payments.
It does suggest that people are being more cautious about cashing in their pension funds. This could be due to a number of reasons, including the unsteady investment market and worries about eventually running out of money. Others are no doubt aware that we are living longer and are nervous about touching their pension pots, while some individuals are probably just confused about what pension freedoms actually means for them.
At The Goodman Partnership – an independent financial adviser based in Kent - we’ve been working with our clients at retirement and pre-retirement to make the most of these new rules. In simple terms, ‘pension freedoms’ means benefits may be drawn from pension plans at any time after age 55 and you don’t have to retire from work in order to draw benefits. The two main methods of drawing benefits from accumulated pension funds are an annuity purchase or a flexi-access/income drawdown.
We have built our reputation on advising people at or near retirement, so these pension changes have certainly seen our workload increase, as our clients come to us for advice. Proper advice is key, as it helps people to weigh up their options and make the best decisions for their future.
If you are considering taking advantage of the benefits pension freedoms undoubtedly offer people, give us a call on 01892 500600 first.