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Pot luck?

10 February 2017

Savers have accessed over £9 billion from pension pots under new freedoms, but will the government lift the lid on how the money is being used?

Since April 2015, individuals aged 55 and over have been able to access their defined contribution pension savings as they wish, subject to their marginal rate of Income Tax – a move trumpeted by champions of freedom and choice.

The latest figures published by HM Revenue & Customs show that hundreds of thousands of people have accessed their pension pots flexibly since the new rules were introduced by George Osborne. In total, over 1.5 million separate payments have been made, with £9.22 billion withdrawn since April 2015. In the final three months of 2016 alone, 162,000 people accessed £1.56 billion flexibly from their pension pots.

The data covers ‘flexible payments’ from pensions, which include full or partial withdrawals, flexible drawdown and buying a flexible annuity – a type of investment-linked annuity which provides flexibility to change income levels.

 “Giving people freedom over what they do with their hard-earned savings, whether it’s buying an annuity or taking a cash lump sum, is the right thing to do,” said Simon Kirby, Economic Secretary to the Treasury. “These figures show that people continue to take advantage of the choices on offer: choices ‎only made available since the government’s landmark pension freedoms were introduced in April 2015.” 

Flexible payments from pensions


Year and quarter Number of payments Number of individuals Total vale of payments (billions)
2015 Q2 121,000 84,000 £1.56
2015 Q3 130,000 81,000 £1.17
2015 Q4 123,000 67,000 £0.80
2016 Q1 142,000 74,000 £0.82
2016 Q2 296,000 159,000 £1.77
2016 Q3 324,000 158,000 £1.54
2016 Q4 393,000 162,000 £1.56
Total 1,529,000 785,000 £9.22


Source: HMRC; Knowledge, Analysis & Intelligence; 25 January 2017

While HMRC releases data on how much is being taken from pensions, they don’t reveal how that money is being spent, leading to concerns that it is insufficient to gauge the success of the scheme.

“It’s still not clear what the money is being used for, or if those raiding their pension pots are thinking sufficiently about their long-term financial security and how they might meet costs in the future,” said Ian Price, divisional director at St. James’s Place. “Care costs, for instance, can be a financial burden that many people are unprepared for.”

Consequently, there are calls from the pensions industry for the government to do more detailed analysis in order to identify and head off any future problems caused by people spending their pension pot too quickly, and thereby increasing the likelihood of running out of money.

Meanwhile, it is likely that the Treasury is benefiting from a short-term boost in tax revenues as more over-55s access cash sums which, when added to other sources of income, bump them into higher tax bands. However, the data doesn’t reveal the tax revenue generated, so it is difficult to estimate how much extra is ending up in the hands of the taxman.

What’s important is that those accessing their pension pots flexibly get financial advice on appropriate rates of withdrawal and are given expert recommendations based on a full appreciation of their circumstances, including their health. Furthermore, because of the role pensions can now play in leaving a tax-free inheritance, individuals need to consider whether their pension is the last income tap that they turn on.

“We are working with our partners, including Pension Wise, the regulators and pension firms, so that savers have the support they need to understand the options available to them,” said Kirby.


The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.


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