The UK Government have recently published figures showing a 6% year-on-year rise in the value of flexible withdrawls from pensions throughout October, November and December in 2020. This amounts to £2.4 billion last year, up from £2.2 billion of the same months in 2019. The total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £42 billion.
Around 360,000 individuals withdrew from their pensions throughout the three months leading to December in 2020, seeing a 10% increase from 327,000 during the same months of the previous year. There was also a 4% increase in the number of individuals withdrawing compared to the previous three months.
Despite these yearly rises, the average amount withdrawn per individual actually decreased in 2020, falling by 3% from £6,800 in 2019 to £6,600. Since 2016 average withdrawals have been falling steadily and consistently.
The number of people making withdrawals usually drops in July, August and September after peaking earlier in the year in April, May and June. The winter months of October, November and December typically see a slight drop in the number of people withdrawing, with last years change in behaviour possibly being attributed to the impact of the Covid-19 pandemic.
Darren Philp, Director of Policy and Communications at SmartPension, an automatic enrolment workplace pensions platform, said “These figures aren’t surprising given the dip in withdrawals we saw in the earlier half of the year and no doubt reflect the impact of the COVID-19 pandemic.
“People are feeling the pinch of lockdown and the precarious economic situation, and it can only be expected that people approaching retirement will turn to their pension savings to help get by. But there’s a potential sting in the tail. Government rules mean that annual pension top-ups are limited to £4k after money has been taken out. There is a strong case for the Government looking at this as we exit the pandemic and people look to rebuild their retirement finances.”
Pension freedom tax rules allow members of defined contribution pension schemes to access their pension savings early, provided they have reached the required minimum pension age, which is currently 55. Scheme members can take their pension benefits in a number of ways, either as one or more payments a year for a number of years, several payments a year over a shorter timeframe or the full value of the fund could be taken in one payment.