On the go: A total of £2.6bn was withdrawn from defined contribution pension schemes under the government’s flexible payment rules during the first quarter of 2021, an increase of 6 per cent year on year from the £2.5bn taken out during the same period last year, according to new statistics from HM Revenue & Customs.
Savers withdrew an average of £6,800 from their pension pots between January and March, a drop of 4 per cent from the £7,100 taken during the first quarter of 2020.
The latest figures mean that in excess of £45bn has now been withdrawn flexibly from pensions since the retirement freedoms were introduced in April 2015.
HMRC also reported that around 383,000 individuals withdrew funds from their pensions during the first quarter of 2021, a 10 per cent increase from 348,000 in the same period of the previous year.
Pension freedom tax rules allow members of DC schemes to access their pension savings early, provided they have reached the required minimum pension age, which is currently 55.
Commenting on the statistics, Tom Selby, senior analyst at AJ Bell, said: “2020 was the most challenging year many of us have faced as coronavirus and the subsequent lockdown fundamentally altered our lives.
“That 12-month period also presented a huge test for retirement investors, with markets in free fall in March and April and millions facing tough choices about whether to tighten their belts to ensure their plans remained on track.”
He added: “With 2020 now thankfully behind us, pension withdrawal patterns appear to be returning to what we saw before the pandemic struck. This likely reflects increased consumer confidence as society gradually opens up, the success of the vaccine programme, and a rally in investments since April last year.”
Selby said the second quarter of 2021 “will almost certainly see a sharp increase in withdrawals, as was the case in each year before the pandemic hit, as savers take advantage of a new set of tax allowances”.
He urged the government to review the money purchase annual allowance, which reduces the amount that can be saved in a pension each year from £40,000 to just £4,000.
“This draconian cut will leave many who have accessed their pension during a time of extreme financial distress — either for themselves or loved ones — severely hampered their ability to rebuild their retirement pot post-lockdown.
“At the very least, the MPAA needs to be increased back to £10,000, but if the government really wants to send a pro-saving message it should scrap the MPAA altogether.”
Also commenting on the issue, Ian Browne, pensions expert at Quilter, said: “The MPAA is arguably preventing a cohort from accessing their pensions flexibly but wishing to maintain some level of employment.
“The reduction in your annual allowance after taking just 1p from your pension could materially impact someone looking for short-term financial relief from their pension or those who want to enjoy semi-retirement.
“The pandemic was the perfect opportunity to assess the use of these policies, but it appears the government remains stubborn at keeping it in,” he added.
