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7 November 2018 last updated

Pension drawdown withdrawals hit record high of £5.9 billion

New data from HMRC shows pension drawdown numbers hit record numbers and £5.9 billion in value so far in 2018 as freedoms have given people retiring the right to access all their money over time rather than buying an annuity.

The HMRC has published the latest data of pension drawdown withdrawals confirming record payments of 585,000 were made from 258,000 people in the third quarter of 2018 with a value of £1.96 billion.

This means money originally use to buy a pension annuity is being encashed directly from the fund or transferred to flexi-access drawdown and withdrawn over time.

In the three and a half years since pension freedoms, some 4.8 million withdrawals have been made by over 1.3 million people with total value of £21.6 billion.

In 2018 so far there have been a record 1.66 million payments valued at £5.9 billion from 744,000 individuals and is on track to exceed all previous years.

Pension drawdown withdrawals hit record high
  Withdrawals from pension funds since 2015 total 1.66 million people and value of £21.6 billion
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Values of withdrawals have decreased

In the last quarter the number of payments were 585,000 and the value of £1.96 billion with an average withdrawal of £3,350. This is down from the previous quarter were 574,000 and the value of £2.27 billion with an average withdrawal of £3,954.

Pension drawdown payments
Year/Quarter Payments Individuals Value
2017 Q1 381,000 176,000 £1.59 m
2017 Q2 403,000 200,000 £1.86 m
2017 Q3 435,000 198,000 £1.59 m
2017 Q4 454,000 198,000 £1.50 m
2018 Q1 500,000 222,000 £1.70 m
2018 Q2 574,000 264,000 £2.27 m
2018 Q3 585,000 258,000 £1.96 m
Source: HMRC flexible pension payments November 2018.

The average amount withdrawn has decreased since pension freedoms were introduced and in 2015 quarter 2 the average amount taken was £12,892. Twelve months later in the same quarter of 2016 this reduced to £5,979 and in 2017 this was £4,615.

Pension freedoms
are helping to offer choice when taking benefits using flexi-access drawdown or fixed term plan.

For people with larger pension funds they can use part of their fund to provider a secure income using a pension annuity to cover fixed expenses and the remainder as drawdown. This would allow them to access further income on a regular basis or as single lump sums giving them the opportunity to manage their fund over time.

Canada Life pensions technical director Andrew Tully said, Cash is king as the rush to withdraw money from pensions following the introduction of the freedoms shows no signs of abating.

Typically smaller pensions are being fully withdrawn, while people with larger pensions are making multiple withdrawals in a tax year, suggesting they are treating their pension more like a bank account, says Mr Tully.

Flexi-access drawdown allows you to take your tax free lump sum now and leave the remaining fund invested, take an income, a lump sum to minimise tax.

As an alternative, uncrystallised fund pension lump sum (UFPLS) lets you to take your tax free cash as part of an income reducing the amount od tax paid. The advantage of this approach is the fund remains invested over time allowing the tax free cash could increase in the future.

low risk investors can consider a fixed term annuity allowing you to select an income and term for the plan. A five year allows you to vary the income you take from nil up to any amount selected. A guaranteed maturity amount is available at the end of the term when you can consider all options again such as an annuity from any provider or flexi-access drawdown.

News related stories:
Pension freedoms help retirement funds of people soar to £50,000
Pension freedoms tax receipts exceed HMRC expectations at £1.5bn
Pension fund withdrawals high with new legislation says FCA
Annuities sold now 75% lower than before pension freedoms
New pension rules see £1 billion of funds removed at retirement
Related internet links:
HMRC - Flexible payments from pensions
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