Commenting on the data, Nick Flynn, retirement income director, Canada Life: “The floodgates have well and truly opened as record amounts are being stripped from pensions. While there is no need hit the panic button, I hope these people have a backup plan to be able to generate a wage in retirement.
“The current cost-of-living crisis may be driving some of this behaviour, and no doubt pent up demand following the pandemic will also be behind these record withdrawals. It is important as an industry for us to continue to focus on providing support to ensure people are helped to make the best decisions, including phased withdrawals to make sure they are as tax efficient as possible.
“With annuity rates having experienced such a dramatic positive shift, with a typical income in excess of 7% for a 65 year old, people can balance the need for income security to pay the bills and also retain flexibility in a very efficient way.”
Damon Hopkins, Head of DC Workplace Savings at leading independent consultancy Broadstone, commented: “It is great to see an extra half a million savers making contributions to their personal pension. However, it perhaps reflects a challenging economic time with older workers dipping back into the workforce to top up their savings and reinforcing their financial buffer for later life.
“The data is a reminder of value of pension savings with employee contributions topped up by both their employer and the government through tax relief to the tune of tens of billions of pounds every year. As we cautiously begin to head towards sunnier economic times, starting to ratchet up these contributions will be crucial to achieving desired standards of living in retirement.”
Stephen Lowe, group communications director at retirement specialist Just Group, said: “We would expect to see the number and value of flexible payments from pensions increase as more people reach the age when they can access their pensions. But for the last two quarters we’ve also seen the value of the average withdrawal climb.
“This suggests we may now be seeing an acceleration in the amount being withdrawn as people grapple with the recent economic challenges. People may be looking to top up their income from their pension to support their standard of living.
“We have seen an increase in economic inactivity among older workers. For those who retired after the pandemic they may find the cost of living requires them to take more from their pension than they originally planned. Those who are still in work may be drawing on their pension savings to help make ends meet – either for themselves or their family.
“The underlying worry is that people may be taking more out of their pension to tide them through the cost-of-living crisis but are unaware of the long-term consequences. They may have plans to increase their savings in the future to make up for what they’ve withdrawn, but by triggering the MPAA they significantly limit the tax relief future pension savings will attract – making that saving much harder work.
“We really don’t know how many people understand the longer-term consequences of taking their first flexible payment. So, there’s one simple piece of advice for everybody considering dipping into their pension pot – either seek professional, regulated advice or take advantage of the free, independent and impartial pensions guidance from government-backed Pension Wise.”
Becky O’Connor, Director of Public Affairs at PensionBee, said: “People are increasingly benefiting from pensions either by choice or because salary increases are resulting in a rise in contributions. However, the apparent increase in the number and value of withdrawals is concerning - the risk is that people take more out to cover the rising cost of living but don’t leave enough in their pensions to get through their whole retirement.
“It’s also a little disappointing not to see a bigger rise in the number of self-employed people opting to pay into a pension and a shame to see so many being caught out by charges for going over their allowances in previous years.
“The Annual Allowance has now increased from £40,000 to £60,000 and the Lifetime Allowance has been abolished, so the number of people being hit by these charges should drop significantly in future data. Nevertheless, as wages rise, it’s possible that more people could be dragged over the Annual Allowance - particularly those who are paying in more than the minimum, paying bonuses or inheritance money into a pension or those with particularly generous employer schemes.”
HMRC Statistics
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