The pension flexibility changes undoubtedly provided a great opportunity for pension savers to access their pots in more efficient ways, providing additional flexibility and options allowing them to better meet their objectives and achieve better financial outcomes. Unfortunately, and perhaps inevitably, the changes also provided the opportunity for pensions to be accessed in an inefficient way, potentially causing individuals to pay significant unnecessary tax bills and potentially damage their long-term retirement goals.
The most recent statistics from HMRC reflecting flexible pension payments show a 17% decrease in the amount withdrawn from pensions flexibly, decreasing from £2.8 billion in Q2 2019 to £2.3 billion in Q2 2020.
There was also a small increase in the number of individuals making withdrawals, but the average withdrawal in Q2 2020 fell 18% to £6,700, down from £8,200 in Q2 2019. The statistics have shown average withdrawal amounts consistently decreasing since mandatory reporting began in Q2 2016, usually with peaks in Q2 of every year likely linked to the start of a new tax. However, given the current situation with Coronavirus, it is perhaps expected this year that there has been no Q2 peak.
The decrease in average withdrawals suggests fewer people are paying unnecessary income tax on large withdrawals, however, advice is critical to ensure money is taken in a tax-efficient way and aligned to an individual’s overall goals and objectives.
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