Pension freedoms two years on: where are all the Lamborghinis?


Two years on from the introduction of pension freedoms, the indications are that retirees are taking a measured rather than reckless approach with their finances.

Pension freedom statistics released yesterday (26 April) by HM Revenue & Customs (HMRC) show that in total £10.8 billion has been withdrawn since the freedoms were ushered in in 2015. This figure is a conservative estimate – it was optional for providers to report pension freedom data to HMRC in 2015/16 – so the actual figure will be higher.

In the 2016/17 tax year 393,000 people took out £6.45 billion from their pension pots, which works out at an average of around £16,400.

Various pension commentators, including Andrew Tully, pensions technical director at Retirement Advantage, point out that this suggests it is unlikely many Lamborghinis have been bought with the cash. In addition, the average withdrawal per person continues to trend downwards (see table below), which is ‘hopefully indicative of savers managing their retirement incomes sensibly’, according to Tom Selby, senior analyst at AJ Bell.


PeriodAverage withdrawal per person
Q2 2015£18,571
Q3 2015£14,444
Q4 2015£11,940
Q1 2016£11,081
Q2 2016£11,132
Q3 2016£9,747
Q4 2016£9,630
Q1 2017£9,034

Source: AJ Bell, using HMRC data

Tom McPhail, head of policy at Hargreaves Lansdown, agrees that on the whole savers are being prudent, rather than rapidly blowing their pensions – a concern that was widely aired before the pension freedoms were introduced.

‘After the initial bow-wave of demand in the first two quarters of 2015, the retirement income market appears to have settled and stabilised remarkably quickly. Annuity transactions (reported elsewhere) have stabilised too at around 20,000 a quarter; so all this data suggests the pension freedom reforms are bedding in well,’ says McPhail.

But errors are being made, the most common being that people are withdrawing money from their pension pots and putting it into cash accounts, which on the whole are paying mediocre rates of interest.

According to research carried out by Retirement Advantage, one in four retirees are taking cash out of their pension pots and putting it into a savings account. Separate analysis by Fidelity paints a similar picture. It found 41 per cent of retirees who took out a cash lump sum from their pension pot decided to stash this money away in a current account.

‘Taking money out of a tax efficient pension to simply reinvest or put it in a savings account, having paid tax on some or all of it, is not a sensible course of action,’ adds Tully.

‘With people living longer and inflation set to rise, it’s vital that people use their pension savings wisely to ensure their money lasts for the whole of their retirement. Getting professional financial advice is a crucial step for those approaching retirement to be sure they fully understand all their options and get the best outcome possible.’

- Top tips to avoid the most common retirement trap

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