Pension withdrawals hit a record low as over-55s show 'restraint' amid struggling stock markets

25 January 2019

Over-55s have taken progressively less and less money via pension freedoms, and new HMRC figures show withdrawals have reached a record low.

The average pension cash withdrawal was £7,197 in the final three months of 2018. This is the lowest figure on record since the introduction of pension freedoms in 2015.

The average withdrawal amount has declined progressively since 2015. The average withdrawal in the first year was over £18,000 – perhaps representing an initial appetite to access savings.

However, over-55s have appeared to show ever more restraint in the proceeding years since.

In the final quarter of 2018, 264,000 over-55s withdrew cash from their pension pots, for a total sum of £1.9 billion.

Tom Selby, senior analyst at AJ Bell, comments: “While the popularity of the pension freedoms shows no signs of abating, the amount people are withdrawing from their funds per quarter has dipped to the lowest level on record.

“Although it is too early to draw firm conclusions about why this has happened, it could be a sign of people showing restraint in how they spend their hard-earned retirement pots.

The graph below shows the average cash withdrawal size since 2015:

Source: HMRC via AJ Bell, 25 January 2019

Torrid year for savers

The decline may also indicate a response to badly-performing stock markets.

Mr Selby adds that markets in 2018 were tough for those drawing down their pensions, as declining indices affected the value of pension pots.

He says: “In these circumstances it can be sensible to cut back withdrawals in order to ensure you don’t run out of money during retirement.

“The past 12 months will have been particularly difficult for anyone who entered drawdown for the first time – especially if they took large income withdrawals just as markets hit the skids.

“Anyone in this situation has an uphill task to recover the losses they have made, and will be praying for a better year for their investments in 2019.”

Ian Browne, pensions expert at Quilter adds: “This is very much at the forefront of the regulator’s mind and the Financial Conduct Authority is supposed to be releasing its policy statement following the Retirement Outcomes Review imminently, including plans for pathway funds for this stage." 

So-called 'pathway funds' are lifestyle funds designed to help older savers targeting a particular retirement date. This is done by reducing risk and diversifying their pension savings, in theory shielding their money from the worst effects of poor market performance. 

Mr Browne says: "A sensible option, but pathways can only do so much and the industry and government should not rely on them to fix all the problems. We need to ensure that people are engaging with their retirement plans and how their pension funds fit into those plans.” 


In reply to by anonymous_stub (not verified)

Re: article on 'Reduction in Pension Withdrawals'I have a draw-down Sipp, established about 3 years ago; it is invested for income rather than capital growth, so movements in the stock-market - while depressing! - don't worry me too much.However, I have another smallish pension fund, which I intended to transfer to my current provider around autumn of last year. In fact, I had just begun the ransfer process when the stock-markets nosedived. Rather than take significant losses when the funds were sold, I felt I had no option but to cancel the transfer. I await better times!

In reply to by anonymous_stub (not verified)

Should never have been allowed and should be ended. Cameron said any amount drawn from pension fund would be taken into account if the person ever tries to claim benefits but this has not happened, they can draw out from pension fund just before retirement then those that have not contributed still claim full Guaranteed Pension Credits and get rest of works pension on top by not declaring it, any checks on these people are so poor and need through checks every year. I have an ex wife that is doing it.

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