• A total of £45 billion has now been withdrawn flexibly from pensions since the retirement freedoms were introduced in April 2015 (https://www.gov.uk/government/statistics/flexible-payments-from-pensions/flexible-payments-from-pensions)
• While during the lockdown-induced market sell-off in 2020 savers took less out of their pensions, the latest figures point to a return to ‘normal’ withdrawal patterns
• Average withdrawals per person were roughly £6,800 in the first quarter of 2021, 4% lower than a year earlier
• The second quarter of 2021 will almost certainly see a spike in withdrawals as savers take advantage of a fresh set of tax allowances
• Government urged to revisit ‘draconian’ money purchase annual allowance (MPAA)
Tom Selby, senior analyst at AJ Bell, comments: “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 freefall in March and April and millions facing tough choices about whether to tighten their belts to ensure their plans remained on track.
“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.
“Even in this sun-soaked, ebullient mood, those accessing their pension flexibly need to think carefully both about how their retirement pot is invested and the sustainability of their withdrawal plan.”
Why the MPAA needs to be revisited
“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.
“Anyone accessing taxable income from their pension needs to be aware of the impact of the money purchase annual allowance (MPAA), which reduces the amount you can save 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 in 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.”
Source: HMRC
