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Pensions
Posted: July 2019

Pension freedoms

 

Over one million UK savers embrace relaxation of rules

The Government’s announcement on the relaxation of pension rules changed the investment landscape and pension freedoms show no sign of losing their popularity.

HM Revenue & Customs latest figures[1] on the flexible withdrawals from pensions shows that the number of savers who have embraced their freedoms now exceeds one million (1.04 million).

Individual withdrawals
A record-breaking sum of £7.83bn was withdrawn in 2018, up from £6.54bn in 2017. It is reported that there have been 5.49 million individual withdrawals since the pension freedoms were introduced in Q2 2015.

More than one million savers have embraced their new freedoms since 2015, and a record £7.83bn of taxable payments were withdrawn in 2018[2].

Dash-for-cash
There is however no evidence of an uncontrolled “dash-for-cash”, as was feared by some when the freedoms were introduced. The 2018 figure of £7.83bn needs to be seen in the context of a total private pension wealth in the UK of approximately £5,000bn[3].

Withdrawal payments have also consistently averaged less than £4,000 since summer 2017, showing little evidence of savers rushing to buy Lamborghinis! These freedoms are attractive to younger savers too, with the research finding that one-third (33%) of under-35s believe this flexible access encourages them to put more money towards their pension[4].

Making the most of the pension freedoms
Understand your state pension

The state pension continues to be most peoples’ biggest source of income in retirement. But the state pension and age at which you are entitled to this money is changing. Ask for a free state pension forecast to ensure you understand your entitlements – www.gov.uk/check-state-pension

Take your time
You may have spent 40 years saving for your retirement. Take more than 40 minutes considering your options.

Consider your life expectancy
Pension savings are intended to last the rest of your life, yet we typically underestimate how many years we may live.

Approach final salary pensions with caution
If you have a final salary pension you will need to transfer it elsewhere to access the freedoms.

This is a significant decision as you could lose significant benefits. Such a decision should be approached with caution, and you should obtain qualified professional financial advice.

Source data:
[1] https://www.gov.uk/government/statistics/flexible-payments-from-pensions
[2] This figure underplays the total amount withdrawn as it does not include any additional amounts taken as tax-free-cash.
[3] https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/-incomeandwealth/bulletins/wealthingreatbritainwave5/2014to2016#private-pensions-wealth
[4] Aviva 2018 survey of 1,000 UK adults: “Would you put more money towards your pension if you were able to access the money more flexibly?”

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.