£9.2bn accessed under pension freedoms

Almost 400,000 payments from pension pots were flexibly accessed in the last three months of 2016, making that by far the most popular quarter for payments since the policy’s introduction.

The 394,000 payments made in the final quarter of 2016 represents a 20% increase on the 324,000 payments made in the previous three-month period.

While the number of payments from pension pots rose significantly in the last quarter, HMRC’s figures show the number of individuals accessing their pension pots only rose from 158,000 to 162,000 – a 2.5% increase.

With £1.56bn flexibly accessed in the fourth quarter of 2016, this means – despite the increase in the total number of payments – the average amount withdrawn per person has been dropping since pension freedoms were introduced.

As the following graph from AJ Bell shows, the average withdrawal for the last quarter of 2016 was the lowest it has been since the introduction of the pension freedoms – at £9,630, in comparison with £9,747 in the third quarter of 2016. In the second quarter of 2015, just after the pension freedoms were introduced, the average withdrawal was £18,571.

Source: HMRC

‘More analysis needed’

Despite the considerable amount of money accessed flexibly since the pension freedoms, AJ Bell pension expert Gareth James was sceptical of the policy’s success.

He said: “While it is good to see that the pension freedoms are being used by a large number of people, it is dangerous to use the £9.2bn as a measure of success when it doesn’t tell us what people are doing with that money.

“Are they using it to provide a regular and sustainable income as pensions are designed to do, or are they spending it too quickly and therefore likely to run out of money too quickly?”

James added: “It is important that the government carries out a more detailed analysis of how the pension freedoms are being used before any realistic assessment of their success can be made.”