Pension withdrawals, at least from private schemes, can be made through a whole host of avenues. Once a person reaches 55, they may be able to take money from their pension in one big chunk, have income come through in stages or combine a number of different drawdown options.
HMRC keeps track of how pensions are accessed and today they released figures on how retirees are utilising flexible payments.
Interestingly, the figures revealed that there has been a drop in withdrawals overall, which will be relieving for those who feared that people would have no choice but to raid their pension savings to keep afloat during the pandemic.
The official statistics revealed:
- Through Q2 2020, £2.3billion was withdrawn from pensions flexibly – a 17 percent decrease year-on-year from £2.8billion (Q2 2019). The total value of flexible withdrawals from pensions since flexibility changes in 2015 has now exceeded £37bn
- Q2 2020 saw 340,000 individuals withdraw from pensions, a one percent increase from 336,000 in the same quarter of the previous year. However, there has been a decrease in the number of individuals withdrawing compared to the previous quarter Q1 2020 (348,000) – which is contrary to normal seasonal patterns. Withdrawal numbers typically rise in Q1, before peaking in Q2, as this coincides with the beginning of a new tax year. This change in behaviour may be attributable to the impact of the COVID-19 pandemic.
- The average amount withdrawn per individual in Q2 2020 was £6,700, falling by 18 percent from £8,200 in Q2 2019.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, however on this occasion we have not seen a peak in Q2. This may also be linked to the impact of COVID-19.
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Maike Currie, an investment director at Fidelity International, warned however that the decline in withdrawals could signal that retirees are struggling at the moment: “Despite a small increase (one percent) in the number of people accessing money from their pensions, compared to the same quarter last year, Covid-19 has had a clear impact on people’s retirement decisions.
“The second quarter of 2020 saw a significant dip in withdrawals with a 17 percent decrease year-on-year in the value of flexible withdrawals, bucking normal seasonal patterns.
“This could well be the result of ongoing market volatility, changing circumstances, or simply continued uncertainty with those approaching retirement choosing to keep their money invested for longer.
“Pension freedoms, introduced back in April 2015, offer a huge opportunity for those nearing retirement to take control of their finances, choosing how best to use the money they have invested to secure their future.
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“However, the large drop in average withdrawal value to £6,700 in the second quarter is a clear sign of retirees’ growing trepidation about the economy and resulting changes to their plans.”
She went on to detail that: “It’s crucial that savers feel supported at every stage of preparing for retirement, from access to information which helps them make the most of their contributions in the accumulation phase of their journey, through to accessing the right advice and guidance as they make important decisions about how and when to drawdown their pot.”
Support and guidance for pension decisions can be sought from various sources.
Private advice can usually be tailored to an individual’s circumstances but it is usually costly to receive.
Pension Wise detail that people approaching retirement age have the following choices when it comes to their pension pots:
- Leave the pots untouched, potentially increasing their value down the line
- Get a guaranteed income by purchasing an annuity
- Get an adjustable income
- Take cash from a pension in chunks
- Take the whole pot in one go
- Mix the above options.