"Reassuringly this shows no evidence of the feared rush to take money out of pensions in response to financial challenges people are facing as a result of Covid-19."
£2.3 billion was withdrawn from pensions flexibly in Q1, a 17% decrease year-on-year, according to the latest figures from HMRC.
Q2 saw 340,000 individuals withdraw from pensions, a 1% increase from 336,000 in Q2 2019. However, there has been a decrease in the number of individuals withdrawing compared to the previous quarter (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. HMRC says 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The average amount withdrawn per individual in Q2 2020 was £6,700, falling by 18% from £8,200 in Q2 2019.
Steven Cameron, pensions director at Aegon, commented: “In the latest quarter April to June 2020, £2.3bn has been withdrawn flexibly under the pension freedoms, down from £2.8bn in Q2 2019, a 17% fall, bucking the trend of increases seen every other year since freedoms were introduced. Reassuringly this shows no evidence of the feared rush to take money out of pensions in response to financial challenges people are facing as a result of Covid-19.
“Furthermore, the average amount withdrawn has also dropped sharply by 18% from £8,200 to £6,700. While average withdrawals have fallen year on year since pension freedoms started, this is a particularly large reduction. When stock markets have fallen, there is a risk that if people continue to take the same level of income, their pension pot will be depleted too quickly. The money withdrawn during a downturn represents a larger proportion of the pension pot and means the fund doesn’t have the chance to recover its value over time.
“Pensions are designed to provide an income throughout retirement and the more left invested while fund values remain depressed, the more you benefit if stock markets recover. So it’s particularly positive to see average withdrawals down broadly in line with stock markets.”
Stephen Lowe, group communications director at Just Group, said: “This is slightly lower than we would have expected given that it is the start of the new tax year which usually records the highest withdrawals. It seems that people have been cautious about taking cash, perhaps because many saw their pension fund values hit by falling stock markets.
“The figures also reveal that 59,458 people chose to take a flexible payment for the first time, which is about 10,000 fewer than in the average quarter.
“It looks like people have been cautious and not felt the need to raid their retirement funds, which is positive. As we look forward, it will be interesting to see if there is a bounceback in those figures caused by people whose finances have been affected looking to pension money to repair some of the damage.
“We would urge people thinking of doing this to first use the free, impartial and independent guidance offered by Pension Wise to ensure they understand all the potential consequences.”
Maike Currie, investment director at Fidelity International, added: “Despite a small increase (1%) 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% 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. 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.
“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.”