People in Britain are increasingly taking advantage of the Freedom and Choice initiative, which gives savers the option to access their defined contribution payments as and when they wish, according to the latest figures from HM Revenue and Customs.
Flexible payments from pension rose to £5.7 billion in 2016, with the total amount taken out reaching £9.2 billion since Freedom and Choice was introduced in April 2015.
The figures show that the largest quarterly amount of £1.7 billion was taken out during Q2 2016, higher than the £1.6 billion withdrawn in Q2 2015, showing more and more individuals are choosing to take advantage of the change.
The number of people cashing out has also risen at a steady rate, from 84,000 in Q2 2015 to 159,000 in Q2 2016, and reaching a peak of 162,000 in last year’s fourth quarter.
Sally Merritt, head of product at Saga Investment Services, commented on the figures:
“These latest numbers clearly demonstrate the popularity of pension freedoms with the British public, with over half a million people now having made use of them since they were introduced in April 2015. The figures show that typically people are withdrawing small amounts from their pension with the average withdrawal being a little over £6,000.
“We would, however, continue to issue caution when it comes to withdrawing cash from your pension pot without taking expert advice first. Not only does taking money from their pension mean that people need to plan for an alternative source of income in retirement, but it could also lead to people getting a nasty surprise on their income tax bill – especially if they take it all in one go, rather than in phases over multiple tax years.
“There’s also the perhaps lesser known issue of pensions now being a much more attractive way to pass on wealth to loved ones from an Inheritance Tax perspective than was previously the case, this means some people are finding it more tax efficient to release money from other sources before touching their pensions. Ultimately, with increased choice comes increased complexity, and we would urge people to seek advice before taking action.”
Despite this, it appears that the average value being withdrawn is falling, from £5,980 in Q2 2016 and £4,753 in Q3 down to £3,969 in Q4.