£2.4 billion was withdrawn from pensions flexibly in Q4 of 2020, a 6 per cent increase year-on-year from £2.2 billion withdrawn throughout the same months in 2019.
But the average payment in Q4 2020 was an all-time low, at £2,600 – as the number of people reaching age 55 increased, as baby-boomer peak years were able to access pensions for the first time and coverage of DC pensions grew.
360,000 individuals withdrew from pensions throughout October-December 2020, a 10 per cent increase from 327,000 during the same months of the previous year.
The number of individuals making withdrawals typically drops in July-September after peaking in April-June. October-December typically see a slight drop in the numbers of individuals withdrawing.
Aviva head of savings & retirement Alistair McQueen says: “The 2020s will see a record nine million people reach age 55 – the current age of access to the pension freedoms. Nine million is more in one decade than we’ve ever seen before, and probably more than we’ll ever see again. The 2020s will witness ‘peak pension freedoms’. It is essential that this population is helped to navigate the pension freedoms with control.
“The pension freedoms continue to demonstrate their popularity. Total taxable payments since the introduction of the freedoms in 2015 have now breached £40bn – reaching £42bn by the close of Q4 2020.
“Encouragingly, savers continue to show restraint in their use of the freedoms. Despite today’s challenging economic environment, there is no evidence of a “dash for cash”.
AJ Bell senior analyst Tom Selby says: “In a year like no other, retirement income investors faced their first major economic challenge since the pension freedoms were introduced in April 2015.
“The fact year-on-year withdrawals dropped 17 per cent during this torrid period suggests many savers were sensible, choosing to either delay accessing their pension, pause withdrawals or reduce the amount they were taking as income.
“Since then we have seen the number of people accessing their pensions and total withdrawals rise, which is unsurprising given markets have recovered and so investors will feel more comfortable returning to ‘normal’ retirement income behaviour. There is also likely to be some pent-up demand in the system following the drop in withdrawals we saw in the second quarter of 2020.
“However, 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.”
Killik & Co head of wealth planning Svenja Keller says: “The Government state themselves that some of the increases we have seen in the numbers could be attributable to the pandemic. I think this is a logical conclusion and to some extent, the increased percentages are lower than I would have expected.”