Stephen Lowe, group communications director at Just Group, said: “This is slightly lower than we would have expected given that it is the start of the new tax year which usually records the highest withdrawals. It seems that people have been cautious about taking cash, perhaps because many saw their pension fund values hit by falling stock markets.
“The figures also reveal that 59,458 people chose to take a flexible payment for the first time, which is about 10,000 fewer than in the average quarter.
“It looks like people have been cautious and not felt the need to raid their retirement funds, which is positive. As we look forward, it will be interesting to see if there is a bounceback in those figures caused by people whose finances have been affected looking to pension money to repair some of the damage.
“We would urge people thinking of doing this to first use the free, impartial and independent guidance offered by Pension Wise to ensure they understand all the potential consequences.”
Andrew Tully, technical director at Canada Life commented on the results: “The sharp decline in pension freedom withdrawals isn’t unexpected when the reporting period covers the time when the UK was in full lockdown. The ability to spend was limited so the idea of using your pension as a cash machine for larger withdrawals for holidays or home improvements was hardly likely to appeal. People may also be wary of the prevailing economic headwinds and holding off from making larger planned purchases right now despite the governments best efforts to encourage us all to spend.
“We should look forward to the rest of the year to see how consumers use their pension savings, whether that be through pent up demand from lockdown, to prop up household budgets, or whether we see a return to more normal withdrawal behaviours.”
“People flexibly accessing their pensions for the first time need to be aware of the sting in the tail – the money purchase annual allowance – especially if they have future plans to continue paying into their plans.”
The Money Purchase Annual Allowance restricts the amount of money people can save into their pension once they’ve flexibly access it – the current limit is £4,000 a year - and includes both personal and employer contributions if saving through the workplace.
Helen Morrissey, pension specialist at Royal London, said: “Today’s figures show the impact of Coronavirus with many people effectively pressing the pause button on their retirement plans. We have seen a 17% decrease in the amount withdrawn from pensions compared to the same period last year while the numbers of people choosing to access their pension has decreased since last quarter. However, we expect this to be a short term blip - with £37bn withdrawn since the advent of Freedom and Choice in 2015 it is clear to see there remains a strong appetite for pension flexibilities.”
Steven Cameron, Pensions Director at Aegon comments: “In the latest quarter April to June 2020, £2.3bn has been withdrawn flexibly under the pension freedoms, down from £2.8bn in Q2 2019, a 17% fall, bucking the trend of increases seen every other year since freedoms were introduced. Reassuringly this shows no evidence of the feared rush to take money out of pensions in response to financial challenges people are facing as a result of COVID-19.
“Furthermore, the average amount withdrawn has also dropped sharply by 18% from £8,200 to £6,700. While average withdrawals have fallen year on year since pension freedoms started, this is a particularly large reduction. When stock markets have fallen, there is a risk that if people continue to take the same level of income, their pension pot will be depleted too quickly. The money withdrawn during a downturn represents a larger proportion of the pension pot and means the fund doesn’t have the chance to recover its value over time.
“Pensions are designed to provide an income throughout retirement and the more left invested while fund values remain depressed, the more you benefit if stock markets recover. So it’s particularly positive to see average withdrawals down broadly in line with stock markets. Anyone concerned over how to best use their pension pot to secure an income for life should consider seeking financial advice.”
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