Pension withdrawals rise by 6% among over 55s – warning issued over future of pension pots

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Pension assets can be tapped into in numerous ways when holders turn 55 but if people dip into their savings with overindulgence, retirements can be damaged. As coronavirus problems arose in early 2020, fears emerged that people may dip into their pensions to cover their costs and new data from HMRC has revealed this may be occurring.

In a sign that over-55s are turning to their retirement funds for a short-term cash boost during the pandemic, new figures from HMRC show 347,000 people withdrew from their pensions throughout July, August and September 2020.

This is a six percent increase on the same figures from last year.

Additionally, HMRC revealed it was a two percent rise when compared to the previous three months, which is contrary to “normal seasonal patterns”.

As HMRC’s report detailed: “The number of individuals making withdrawals typically peaks in April, May and June, the beginning of the tax year, before dropping in July, August and September.

“However this year, withdrawals have increased in July, August and September.

“This change in behaviour may be attributable to the impact of the Covid-19 pandemic.”

Despite the rise in pension dipping, average amounts have actually dropped, with the average amount withdrawn per person in July-September being £6,700, which was a seven percent reduction when compared to the same period last year.

Steven Cameron, a pension’s director at Aegon, noted the downward trend in average amounts “is even more welcome than usual when stock markets have been particularly volatile”.

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As he continued: “There have been concerns that over-55s facing financial difficulties during Covid-19 would look to their pensions to provide a short-term boost and deplete their pension pot when fund values remain depressed.

“This will remain concerning as we move through a second wave, with employment prospects particularly concerning.

“Alongside Covid-19 there are other headwinds in the path of a stock market recovery, with ongoing uncertainty over Brexit negotiations.

“Those concerned over withdrawing from their pension in a volatile market should seek professional financial advice.

“Pensions are designed to provide an income throughout retirement and reducing the amount of income withdrawn during a period of downturn could be important for the longevity of the pension pot.”

Recently, the government have launched plans to boost usage of Pension Wise, an impartial guidance body, before actions are taken on pension withdrawals.

As Guy Opperman, the Minister for Pensions and Financial Inclusion, commented: “I want taking guidance to become a natural part of the journey savers embark on when making decisions about their pension pots.

“These measures will advance the Government’s goal of ensuring that people have the necessary support and information to make informed choices about their financial futures.”

According to Pension Wise, retirees have the following options for what they can do with their pots:

  • Leave the pot untouched (potentially growing it)
  • Get a guaranteed income by purchasing an annuity
  • Get an adjustable income
  • Take cash in chunks
  • Take the entire port
  • Mix the above options

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