The ‘dearth of information’ on pension freedoms bemoaned in a recent Work and Pensions Committee report could have been remedied by HM Revenue & Customs figures released yesterday, but industry representatives said the report lacked detail.
The report ‘Flexible payments from pensions’ produced by HMRC shows 146,000 people in total accessed their pension pots in the second and third quarters of this year, withdrawing more than £2.7bn. However, it does not go into detail about how much was taken in lump sums versus drawdown, or whether people took their entire pots or only part of them.
Consultancy Towers Watson’s senior consultant David Robbins said it was not clear what HMRC’s statistics show. “It’s quite difficult to draw any strong conclusions from them,” he said.
Tom McPhail, head of retirement policy at investment manager Hargreaves Lansdown, said that given the significance of the pension freedoms, more data could have been published.
He said this would also allow the figures to be compared with those for Q2 published by the Financial Conduct Authority in September.
Certainly the industry and outside observers would have been looking for more comprehensive data
Tom McPhail, Hargreaves Lansdown
“Certainly the industry and outside observers would have been looking for more comprehensive data, particularly given the expectations raised around the forecast of the potential tax receipts and simply the level of attention and scrutiny devoted to the pension freedoms generally,” McPhail said.
Freedoms create long-term concerns
The report shows that under the pension freedoms, 121,000 payments were made between April and June, and 130,000 between July and September, distributed across 84,000 people in the second quarter and 81,000 in the third quarter.
Based on the total payment values in the report, this averages at £18.6k and £14.4k per person of taxable pension withdrawals.
HMRC said the figures could include drawdown payments as well as lump sums.
“A flexible payment could mean partial or full withdrawal, taking money from a flexible drawdown account, or buying a flexible annuity. All of these could be included in the stats,” a spokesperson for HMRC said.
The figures are not comprehensive, as providers will only be obliged to report to HMRC from April next year, and HMRC declined to say what proportion of the market responded for these latest statistics.
Brian Henderson, partner and UK defined contributions and savings leader at consultancy Mercer, said he suspected the figures included more lump-sum payments than drawdown given the small pot sizes. He said the figures seemed to relate to people in their fifties.
“Speaking to some of the providers, the indications are that a high proportion of these funds are being drawn by people in their 50s but [the providers] don’t know what they are doing with the money, so it could be building up greater long-term problems if consumers elect for immediate consumption,” Henderson said.
He said he has also received feedback from banks who said they “are worried about the amount of debt being taken into retirement”.
Hugh Nolan, chief actuary at consultancy JLT Employee Benefits, had similar concerns about the long-term impact of the new flexibilities, warning of a “double whammy” that is yet to come.
“I guess it’s a success story for the chancellor’s policy of flexibility and freedom and choice,” he said, but added: “We’re still left with concern about having to pay for this in the future, when some of these people have spent all their money… and we have to support them from taxpayers’ [money].”
