A record number of individuals have withdrawn lump sum amounts from their DC pensions in the first quarter of 2018, as the latest HMRC figures reveal.
By the end of April, 222,000 individuals had withdrawn money from their pension pots, bringing the total amount of money withdrawn in Q1 to £1,697 m. The amount of payments has increased as well, from 454,000 in the fourth quarterof 2017 to 500.000 in the first quarter of 2018.
Malcolm McLean, senior consultant at Barnett Waddingham warns that more advice is needed on pension freedoms: “These figures confirm the continuing popularity of pension freedom with the public but continue to raise question marks about why the withdrawals are being made, what use is being made of the money and whether many people may be running the risk of leaving themselves short in later life.
“Now that the government appears to have ruled out the concept of both automatic default drawdown and/or default guidance more effort much surely be made to encourage and stimulate the taking of advice before chickens come home to roost and potentially millions of pensioners find themselves in poverty in advanced old age – a problem both for themselves and society at large” he stresses.
However, a recent Prudential survey among individuals who retired since 2015 suggests that only 10 of retirees admit to overspending, while 79% said they had used their funds wisely. A quarter of the recent retirees surveyed said they had used their lump sum to repay debt.
While a quarter of those surveyed said they found it tough to live on their retirement income for the past three years, only 9% worry that taking a lump sum has reduced their retirement income for the long term
Vince Smith-Hughes, a retirement income expert at Prudential, comments: “Pensions Freedoms have proved popular with savers and encouraged people to take more interest in retirement planning and save more. The big challenge is often ensuring that their pension funds last the rest of their lives.
Prudential’s research shows that most pensioners are cautious about how much they drawdown because their greatest fear is running out of money before they die and incurring large tax bills. It’s normally a good idea for pensioners to take financial advice to help develop a plan to ensure the income they draw is sustainable and will last throughout their life.” he adds.
