Despite the huge sum, most pension experts said that pension savers were mostly showing restraint.
The figures reveal that so far £42bn has been flexibly withdrawn from pensions since the freedoms were introduced in 2015.
The latest HMRC data shows:
- Some 360,000 people accessed their pension in the final three months of 2020, up 10% year-on-year and 4% on the previous quarter
- The average amount withdrawn per person showed a fall from £6,715 in Q3 2020 to £6,583 in Q4
- 1.6m people have now become subject to the £4,000 Money Purchase Annual Allowance restrictions
Tom Selby, senior analyst at AJ Bell, said there were signs pension savers were dipping into their pensions due to financial pressure caused by the Coronavirus pandemic.
He said: “In a year like no other, retirement income investors faced their first major economic challenge since the Pension Freedoms were introduced in April 2015.
“There will inevitably be those who have had to access taxable income from their pension during this period as a result of Coronavirus. Given the exceptional circumstances that people have faced in the last 12 months, Chancellor Rishi Sunak should urgently review the money purchase annual allowance (MPAA) these savers are currently subjected to.”
Andrew Tully, technical director, Canada Life, said: “We are now seeing a gradual continuing upwards trend in both the number of individuals opting to withdraw money from their pension savings, and the amount they are choosing to take. This growth towards the end of the year could well be down to pent-up demand from the first half of the year when most of the country was in various states of lockdown.
“We have now seen more than £40 billion withdrawn from pension savings since the inception of Pension Freedoms in 2015. A huge sum of money to be withdrawn in a five year period. This continued growth in the number of individuals accessing their pensions implies that we are seeing more and more working people look to their pension pot to manage their expenses or cover unexpected costs.”
With this in mind he said the case for reforming the MPAA limit of £4,000 was growing to avoid people inadvertently damaging later pension saving.
Stephen Lowe, group communications director at Just Group, said: “We now have figures for the whole year that show that 260,000 people started taking taxable payments from pensions which was 11% lower than the 292,000 recorded in 2019. Numbers did pick up in the final three months with 66,000 taking a flexible payment for the first time which was just 1,000 more than in the same period of 2019.
“These are numbers that you would expect to see increasing so falls are unusual and suggest people taking a wait and see stance during the economic turmoil rather than seeing it as a reason to access pensions. The caveat is that these figures are very limited in what they tell us because they don’t show how many people took tax-free payments or accessed small pension pots valued at less than £10,000.
“There are now 1.6 million people subject to the onerous Money Purchase Annual Allowance restrictions that limits further pension saving to £4,000 a year so it is important that people take professional advice.”
Steven Cameron, pensions director at Aegon said: “Since the start of the pandemic, we’ve seen a change in behaviour amongst those taking flexible withdrawals from their pension. In previous years, we’ve seen a peak in withdrawals in Q2 followed by a slight drop off in Q3 and Q4. However, as in most walks of life, the pandemic has led to a reversal in usual trends and following a decrease in Q2 2020, the number of withdrawals has risen 4% to 360,000 in Q4 2020 compared to the previous quarter and 10% compared to Q4 2019.
“However, encouragingly, the average amount withdrawn has again fallen, now sitting at £6,600 a 3% year on year fall. This shows over 55s continue to exercise restraint during a period of stock market volatility.”