It’s proving popular to cash in smaller amounts from pensions
Recent figures suggest that whilst the number of retirees choosing to cash in their pension pots has increased, the amount being withdrawn by them has gone down. When pension freedoms were first introduced, the average sum taken out was around £20,000. This has since reduced considerably to an average of £10,000 according to statistics from the tax authority, suggesting that more people are now only taking a portion of their overall savings and keeping the rest in a pension scheme. Research at the beginning of the year found that the most popular reason for withdrawing from a pension pot was to complete a major home improvement such as a kitchen or bathroom refurbishment. Whilst the new lower average figure does nothing to suggest that this is no longer the top priority for retirees, it does show that many people want to ensure they have a steady income from investment when they finish working.
“These figures prove that allowing people to do what they want 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. The reaction from the pensions industry has been more tempered, however. Some have warned that the average figure of £10,000 is enough to push those on a basic state pension into the next tax band which could trigger an unexpected tax bill. There have also been warnings against complex product choices and an increase in scamming activity, with those in the industry urging retirees to seek advice before making any big decisions.
Further warnings suggest that pension freedoms were introduced not only to boost flexibility for customers but also to make pensions more attractive, and that focusing on withdrawal rates means there has been little analysis of whether people are saving more in pension schemes. Those in the pensions industry have also expressed concern over the amount of fraud losses since the introduction of freedoms being higher than the estimated figures.
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