Andrew Tully, pensions technical director at Retirement Advantage, said: “It’s great to see people using the new pension freedoms, but these overall numbers mask some emerging and concerning trends.
“Many more people are using drawdown to access their pensions, with significantly lower average values and at much younger ages. This may be fine if many of these people are simply taking a tax-free lump sum, or accessing a small amount of their pension. But given many people will live to a ripe old age, starting to dip into their pension at age 55 and 60 may well bring its own challenges later in life.
“With more people in drawdown having smaller pots, first accessing their pension at younger ages, and possibly having a lower capacity for loss than traditional drawdown customers, ongoing reviews of the suitability of drawdown become ever more relevant and important.”
Steven Cameron, pensions director at Aegon, said: “Retirees are truly embracing their new found freedoms in record numbers. Today’s figures suggest a more settled pattern whereby 150,000 to 160,000 people are withdrawing around £1.5bn a quarter.
“The pension freedoms have created a new era of personal responsibility which also introduces layers of complexity that make planning a retirement income more challenging than ever before. When withdrawing money from their savings, people need to balance today’s income needs against what’s sustainable throughout an increasingly long term in retirement.”
“Advisers have a big part to play in helping retirees navigate these challenges and understand what a safe withdrawal rate looks like. Advisers are also able to explain the full range of options available when it comes to taking a regular income, whether people opt for traditional drawdown or seek to secure an element of their income through drawdown with guarantees which can give individuals comfort that however long they live, they won’t run out of money.”
David Newman, head of pensions at Close Brothers Asset Management, said: “The pensions revolution appears to have moved up a gear or two, with the number of retirees accessing their new found flexibilities almost trebling since the first quarter of the pension freedoms. However, there is a fine balancing act that needs to be struck.
“On one hand, people have greater power to take their retirement cash as they wish to suit their lifestyles and goals and furthermore may not find the option of securing an annuity attractive, especially as rates are near historic lows. On the other hand though, comes greater complexity as well as personal responsibility for later life provision. This needs to account for long-term issues such as increasing longevity and the cost of future care. As such, it’s important that flexibility doesn’t spill over to unsustainability, as there is a real danger people could fall into the trap of exhausting their funds too early in retirement.”
Peter Bradshaw, national account director, Selectapension, said: “It’s good to see the ‘pension freedom’ message working for retirees in the UK, as huge numbers exercise their flexibility. But with this comes complexity and greater personal responsibility. Living longer is a real threat to retirement income, and there is a risk that those drawing too heavily on their retirement pots could run out of money, especially as the HMRC figures appear to indicate that people with smaller pots took advantage of the freedoms in the last three months of 2016.”
New HMRC figures on flexible payments from pensions were released today. They showed the number of payments for the last quarter of 2016 surged to 393,000 – a rise of nearly 70,000 from the previous quarter with some
162,000 people accessing £1.56 billion flexibly from their pension pots over the last 3 months, according to HMRC.
There were over 1 million payments in 2016, covering 550,000 individuals. The total value of payments for 2016 was more than £5.5bn.
Martin Palmer, Zurich's head of corporate funds propositions, said: “Nearly two years since its inception, these figures show that those taking advantage of the pension freedoms has hit an all-time high.”