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The Actuary The magazine of the Institute & Faculty of Actuaries

More than £1bn withdrawn from pension pots since freedoms began, says chancellor

Chancellor George Osborne has revealed more than £1bn has been transferred out of savers’ pension pots as a result of pension freedoms.


Pensioners replacing their car © iStock
Some people will make use of the pension freedoms and withdraw cash to replace their car. © iStock

Speaking at the House of Commons, Osborne said since the reforms came into effect in April this year, 60,000 people had taken advantage of the freedoms, with an average of just under £17,000 each.

“These unprecedented pension freedoms have been widely welcomed,” said the chancellor.

“It is a sign that this is a real success, but we have to make sure that people get the best advice, that the market responds and that companies up their game in helping customers make use of these freedoms. We will be watching these things very carefully.”

To ensure people make use of the pension freedoms, next month the treasury will launch a consultation to look at options to address any “excessive early exit penalties”. The consultation will also examine ways to make the process for transferring pensions from one scheme to another quicker and smoother. 

However, pension experts say the number of people who want to withdraw their savings has not significantly increased. Investment firm Hargreaves Lansdown said most pensioners were involved in drawdown rather than buying an annuity.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “While the number of people taking money from their pensions has not significantly increased, the way they are doing so has, with less than one in ten of people currently choosing to buy an annuity, compared to eight or nine in 10 only a couple of years ago.”

Meanwhile, financial services provider Partnership has found that, on average, people intend to take 27% of their pension pots when they retire, which is “marginally higher than the tax free allowance”.

Based on a survey of almost 1,400 people aged 40 and over, the firm found that of those who would take cash out, 45% wanted to keep their cash in a bank account for treats, 18% wanted to spend it on a “holiday or something to celebrate retiring” and around a third (31%) intended to prepay borrowing such as debt or mortgage. 

Less than one in five (16%) wanted to use the money to replace their car and 11% of respondents said replacing household appliances was a priority.

“While some have predicted a dash for cash following the introduction of the pension freedoms, most people appear to be intending to take only marginally more than they might have before,” said Andrew Megson, managing director of retirement at Partnership.

“They also generally appear to be spending the cash they take out on sensible choices such as the repayment of debt, replacing their car or appliances and putting it aside for incidental costs in retirement.”