The coronavirus pandemic has seen a growing numbers of UK pension savers withdraw cash from their pots, in a sign that over-55s are turning to their retirement funds for a short-term cash boost.
New figures from HM Revenue and Customs (HMRC) show that 347,000 people withdrew from their pensions throughout July, August and September 2020 — up 6% compared to the same quarter last year.
It was also a 2% increase compared with the previous three months, which HMRC said is contrary to normal seasonal patterns.
On average, the amount withdrawn per person in July to September was £6,700 ($8.700), down by 7% from £7,200 during the same time in 2019.
HMRC’s report said: “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.”
The figures have raised concerns that there is an increasing need for access to cash.
Head of pensions and savings at interactive investor, Becky O’Connor, said: “The increase in the number of people turning to their pension pots this year suggests that more people need to access their pension pots to meet living costs.
“Some older people may also be accessing cash to help children with things like first home deposits, as continued house price growth together with tighter mortgage lending has made getting on the ladder more challenging.”
The total value of flexible withdrawals from pensions since pension flexibility changes in 2015 has exceeded £37bn.
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Under the Pension Schemes Act, over-55s with defined contribution pensions can take money out of their pots, subject to tax rules, as most of the money taken from pensions is taxed as income.
Head of financial planning at Rathbone Investment Management, Emma Watson, said: “Given the negative impact of COVID-19 on many people’s income and savings, it comes as little surprise that an increasing number of people are taking advantage of pension freedoms to help them get by and feel more secure.
Watson said it’s a “delicate balancing act” that people need to be aware of when accessing their pensions for short-term cash without compromising their long-term financial future.
She advises those that need to dip into their pension savings in the short-term to do so once they get back onto a “securer financial footing”, saying, “it’s important to make a plan on how you will make up the shortfall.”
“Recent months, understandably, will have thrown a curve ball at many people’s finances and so many may be less focussed on the long-term. But unless we devote some time to financially planning the last third of our lives, there’s a real possibility that many will be disappointed with the retirement they are able to afford. It’s vital that savers understand not only how much they will require in retirement, but also how much needs to be saved in order to reach that goal and the means to achieve it.”
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