Pension freedoms are as popular as ever, with those who first took advantage of the freedoms in 2015 still withdrawing funds at a consistent rate, according to data from the Office for Budget Responsibility (OBR).
The OBR said it expected withdrawals from those who initially took advantage of the freedoms to have “diminished by this stage”.
So far the policy has generated more tax revenue than was first expected. The OBR said between 2015/16 and 2018/19 the policy raised £2bn in tax – two-thirds more than was originally forecast. As the policy has remained popular, the OBR has added an extra £400m per year to its estimate of additional tax revenues from pension freedom.
Former pensions minister Steve Webb, who is now partner at pensions consultancy LCP, said: “These figures show very clearly the continuing popularity of pension freedoms. Some of the tax boost will have come from people transferring out of their defined benefit pensions, and this trend is clearly slowing. But forecasters clearly still expect a steady stream of additional tax on flexible pension withdrawals.
“Although much is said about people spending down their pension pots too quickly, a major concern of regulators remains that people are taking money out of their pensions and then putting it into very low-interest cash accounts. The government needs to do much more to understand how pension freedoms are being used to make sure that the regulatory regime remains appropriate.”
The latest statistics from HM Revenue & Customs showed average pension freedom withdrawals hit a record low of £6,820 between October and December 2019 – a drop of almost 40% since April 2016.
Since the freedoms were introduced in April 2015 more than £30bn has been extracted from pension funds.