Published On: Thu, Oct 31st, 2019

Pension news: Retirement pots drained of more than £30BN leaving millions ‘compromised’ | Personal Finance | Finance

In the three months to September this year, £2.4billion was withdrawn from pensions, a 21 per cent increase from the £2billion taken in the same period in 2018, official figures show. The number of people cashing in rose to 327,000, a 27 per cent jump from 258,000 in the same period a year earlier.

Pension freedom rules introduced in 2015 allow people aged 55-plus access to their whole savings without having to buy an annuity – a guaranteed income for life.

Savers are using their pension like a bank account, drawing down on the pot when they want to.

But experts warn they must be wary of spending too much as they are likely to live longer and could be stung by large tax bills.

Ellie Tembras, of pension specialist Zippen, said: “People have been enjoying unprecedented flexibility with their funds since the freedoms were announced.

“But people are living longer – late 80s and 90s are now commonplace.

“That means far more money in retirement needs to be available to avoid a financially compromised old age.”

Andrew Tully, of Canada Life, added: “People continue to be attracted to stripping cash out of their pensions.

“This is often before planned retirement ages and will, in many instances, be triggering large tax bills.

“There’s an emerging picture of large amounts leaving the pension system, potentially leaving very little for people to live on.”

However, the average amount taken out per individual fell by five per cent, from £7,600 to £7,250, said HM Revenue & Customs.

Former pensions minister Sir Steve Webb, who once said he was not bothered if people spent their pensions on Lamborghinis, said the lower amounts were evidence of responsible spending. Sir Steve is now a director of policy at mutual Royal London.

He said: “People are being savvy about the timing of their withdrawals, spreading them over more than one tax year to reduce their overall tax bill. But we need to increase the proportion of people who take advice about how much pension to withdraw.”

Savers can put £40,000 a year tax free into a private pension, but this falls to £4,000 once they have started withdrawing money.

Tom Selby, senior analyst at investor AJ Bell, said: “The taxation of pension freedoms withdrawals is a confusing mess.”

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