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Drawing conclusions

19 May 2016

A quarter of a million savers have drawn their pension under new freedom rules, but only time will tell if those funds are squandered.

Nearly a quarter of a million people have accessed their pension pot flexibly since reforms were introduced a year ago. Official data from the Treasury shows that 232,000 people have withdrawn £4.3 billion from their pensions, and this was spread over 516,000 payments.1

Under the previous system, many individuals had little alternative than to buy an annuity with their defined contribution (DC) pension; but since April 2015, everyone over 55 has had the freedom to take it as a cash lump sum or as flexible income via drawdown, although this comes with tax implications which need to be considered. Savers still have the option to buy an annuity if they want to.

“It’s only right that people should have a choice over what they do with their money,” said Harriett Baldwin, Economic Secretary to the Treasury. “In their first year, our successful pension freedoms have already given thousands of people access and responsibility over their hard-earned savings.”

But after a year of unprecedented change, there is evidence that the initial ‘dash for cash’ is starting to slow. Treasury figures show that, in the three months immediately following the changes, the total amount taken flexibly was £1.56 billion; but this fell to £820 million in the first quarter of 2016.2

In separate analysis, the Association of British Insurers (ABI) reported that the value of cash withdrawals was decreasing, as pent-up demand following the reforms was settling down. ABI data also revealed that smaller pots were generally being taken as lump sums, with an average pay out of £14,800, while larger pots were mostly being used for income.3

Going to pot

Experts agree that most savers are generally acting responsibly with their pension pots, but Ian Price, Divisional Director at St. James’s Place, concedes that some people will be spending their savings with little or no regard for income needs in later life.

“We will only know how many people have squandered their pension in several years’ time when some will have run out of money in retirement,” he says.

The right for savers to access their pension flexibly was championed by former pensions minister Steve Webb, who suggested that he didn’t mind if wealthy pensioners used their pension to buy Lamborghinis.

But greater autonomy to take benefits from a DC pension means very little unless individuals can be persuaded to save more for their retirement. Despite the work being done to improve participation through auto-enrolment, people still aren’t saving enough. Figures from J.P. Morgan Asset Management suggest that the average UK retiree will have a shortfall of 12 years in their retirement savings.⁴

“The truth is that the average retiree’s pension pot would probably only enable them to hire a Lamborghini for a few months,” says Price.


The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The level and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on the individual circumstances. 

1 HM Treasury, 27/04/2016,

2 ibid.

3 Association of British Insurers, 28/03/2016,

4 Guide to the Markets, J.P. Morgan Asset Management, April 2016


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