Savers drain £9.2bn from pensions -but 'not to buy a Lamborghini'

Lamborghini

A total 1.5m people have drawn £9.2bn from their pension savings under new pension rules introduced by the last government, according to official data - but the size of withdrawals appears to be falling.

The average withdrawal from a saver's pension pot is £6,000, according to HM Revenue and Customs.

Previous data, published in March 2016 and covering the first year of the new rules, put the average withdrawal at £18,600.

Pensions experts say the drop in the size of sums being cashed in is evidence the success of the rule-change, and shows savers are being prudent rather than"spending it all on a Lamborghini". 

The freedoms, announced by then Chancellor George Osborne in the 2014 Budget and introduced in April 2015, mean that instead of being required to buy an annuity with their pension pot, people aged 55 could withdraw cash as they wished - including taking everything in one lump sum.

This drew immediate criticism, with some commentators warning that the cash would be spent on holidays and other luxuries.

In most cases 25pc of savers' pension pot is tax-free with the remainder subject to tax.

Vince Smith-Hughes, of Prudential, a major pension provider, said: “Our own research also shows that people with pension savings are, in the main, acting responsibly and resisting the urge to splash the cash. 

"Fewer than one in 10 people in their first year of retirement last year felt they had overspent, and in fact they were far more likely to make their first year as a pensioner a frugal one than they were to buy a new car or go on a luxury holiday."

The data from HMRC does not distinguish between different types of withdrawal.

In some cases savers might be withdrawing the entire value of their pension. This is more likely with smaller pension pots, experts said. But wealthier savers with larger pensions might be making partial, repeated withdrawals, while leaving the remainder invested.

How much can you save into a pension in a year?

There is no accurate picture of what savers are doing with the cash freed up from their pensions, however, causing some to suggest that over-spending now might be storing up future income problems.

Steven Cameron, pensions director at Aegon, the pension provider, said: “The figures show the total value withdrawn remaining static, which suggests people are on average taking smaller sums.

"But people need to balance today’s income needs against what’s sustainable throughout an increasingly long retirement."

Gareth James, pension expert at AJ Bell, the broker, said: “It is dangerous to use the £9.2bn as a measure of success when it doesn’t tell us what people are doing with that money.

"Is the money being used to provide a regular and sustainable income as pensions are designed to do? Or are savers spending it too quickly and likely to run out?"

 

This article was written by Laura Suter from The Daily Telegraph and was legally licensed through the NewsCred publisher network.