Specialist financial service group Just said the latest HMRC’s flexible payments from pensions figures show an increasing number of people tapping into smaller amounts which could point to a growing reliance on cash withdrawals to fund day-to-day living costs.
“There is a great deal of noise around about the impact of the 2015 pension reforms,” said Stephen Lowe, group communications director at Just. “It’s been suggested pension withdrawal numbers are settling down but actually the numbers keep on rising.
“The quarterly rise was nearly 9 per cent to 176,000 individuals taking payments and the number is likely to jump again with the start of the new tax year. And smaller average withdrawals could well mean they are being made by people with more modest pension pots, who are less likely to be taking professional advice.
“Our view is those wishing to access cash should be ‘auto enrolled’ into Pension Wise guidance in the same way as employees are now auto-enrolled into pension saving. We think opt out rates would be low and it would help people make more informed decisions.”
He said that while pension savings are designed to supplement income in later life, very few people have the size of pension pot that allows them to do this from their mid-50s or even early 60s.
“We don’t have the official figures we need to tell us what is really going on,” he said. “However, there are some signs that with inflation rising, wage growth muted and consumer credit being tightened, some people are seeing the appeal of taking cash from their pensions to supplement their income while still working.”
A recent YouGov report – The Impact of Pension Changes – found that the number of people aged 50+ who said they would use money they withdrew from a pension for everyday expenses had risen to 29% by the end of 2016 from 21% in May 2015.
It also found that nearly four in 10 (38%) said they would save or invest money they withdrew.
This high number planning to take pension money, pay tax and then reinvest it shows why a sense check when taking pension money is so important,” said Stephen Lowe.
“The idea of pension “freedom” has fostered a strange perception that money in a pension is somehow being kept captive and people must take their chance to liberate it, rather than it being in a place where it can grow safe from theft, fraud and tax.
“There are few asset classes most people want to invest in outside a pension that are not already accessible within a pension – cash, equities and bonds. Buy to let property is an exception, but is still a niche area.
“Taking money out too soon undermines true pension freedom which is being free from the worry of whether you have enough income to continue to live the lifestyle you promised yourself while you were working.”
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