"This growth towards the end of the year could well be down to pent-up demand from the first half of the year when most of the country was in various states of lockdown."
This is a 10% increase in the number of individuals withdrawing compared to Q4 2019 and a 6% in the value of withdrawals.
The number of withdrawals is also 4% higher than in Q3 2020, a change in behaviour that could be attributed to Covid-19.
The average amount withdrawn per individual throughout September, October and December 2020 was £6,600, falling by 3% from £6,800 during the same months in 2019.
In total, HMRC has confirmed over £42bn has been flexibly withdrawn from pensions since the freedoms were introduced.
Andrew Tully, technical director at Canada Life, commented: “We are now seeing a gradual continuing upwards trend in both the number of individuals opting to withdraw money from their pension savings, and the amount they are choosing to take. This growth towards the end of the year could well be down to pent-up demand from the first half of the year when most of the country was in various states of lockdown.
“We have now seen more than £40 billion withdrawn from pension savings since the inception of pension freedoms in 2015. A huge sum of money to be withdrawn in a five year period. This continued growth in the number of individuals accessing their pensions implies that we are seeing more and more working people look to their pension pot to manage their expenses or cover unexpected costs.
“It is absolutely essential that anyone choosing to access their pension for the first time should be aware of a potential sting in the tail – the money purchase annual allowance. This is especially important for those of working age who want to continue paying into their pension. With the current savings limit set dangerously low at £4,000 it could severely limit the amount you are able to save in the future. Particularly given the impact of the pandemic, we need to consider a significant increase to the allowance or better still remove it altogether.”
Mark Futcher, head of DC at Barnett Waddingham, added: “It looks like more people are dipping into their pension pots, and is it any wonder, when the economy is under extreme pressure and more people are losing their jobs or part of their income to a furlough scheme, therefore needing extra cash to survive or support loved ones. When times are hard, it’s natural that people lean toward their savings and, generally, that’s what it’s there for: emergency support.
"But when it comes to pensions, the risks can be far greater. While pension freedoms allow us to access our pension from the age of 55, to do so risks cutting into a source of income which will need to last the length of your retirement; 20, 30, or even 40+ years. Not to mention also foregoing tax exemptions and additional returns that come with leaving your pension in its pot."
