Pension freedoms have now run for the past six months – and to mark the milestone, pension providers have issued some data about who is drawing down their retirement cash.
Association of British Insurers
Pension provider trade body The Association of British Insurers (ABI) has put together the data pulled from financial firms allowing flexible access to pension savings.
The new reforms allowing the over 55s to withdraw their pension cash to spend as they wish took effect from April 6, 2015, and since then:
- Calls from retirement savers to pension firm help desks surged by 80% in the first month of flexible access
- Almost £2.5 billion of cash was pulled out of pension pots in just the first three months of flexible access
- Around two-thirds of pension withdrawals were made by those aged between 55 and 60, while 80% went to retirement savers under 65 years old
- Only 42% of under 65s opted for regular pension income payments rather than taking lump sums
- 95% of lump sums withdrawals were for the retirement savers entire pension funds
- The money taken represented 1% of all pension cash invested with pension providers
Sensible financial planning
“According to this data, tens of thousands of retirement savers have exercised their rights to take money from their pensions under the new flexible access rules,” said an ABI spokesman.
“Most of our callers have been under 65 years old and in four out of every five cases, the money has been taken in cash.”
However, most of the retirement cash taken comes from small pot pensions worth less than £30,000, explained the ABI spokesman.
“Hopefully this suggests that people are considering their finances and being sensible about taking and spending their cash,” he said.
Bonus for retirement savers
The ABI is campaigning for younger retirement savers to put more money into their pensions so they can benefit from flexible access when they are older.
“We would like to see the tax system overhauled to encourage more saving, perhaps by offering a bonus to those investing in a pension,” said the spokesman.
The proposal would see pension savings topped up by £1 for every £2 or £3 invested by the government instead of the current pension contribution relief based on the income tax rate savers pay.
The ABI argues this benefits taxpayers paying at a higher rate and disincentivises workers earning less into saving less.