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Cash withdrawals from pension pots jumped by nearly one-fifth, according to official UK data which raised concerns about retirement savings being squeezed during the cost of living crisis.
Between April and June this year, £4bn of taxable pension payments were withdrawn from retirement pots by 567,000 individuals, according to the latest data from HM Revenue & Customs.
This compared with £3.4bn of withdrawals in the previous quarter made by 519,000 individuals. The average withdrawal in April to June was £7,100, nearly a fifth (17 per cent) higher than withdrawals in the same quarter in 2022.
“It’s extremely worrying that so many more people are withdrawing funds from their pensions and at higher rates,” said Alice Guy, head of pensions and savings at investment platform Interactive Investor.
“Pension savings take years of dedication and hard work to build and it’s a huge concern that so many are having to dip into these savings, at potentially unsustainable rates.”
Advisers said householders were likely to be leaning more heavily on their retirement savings to help tide them over during a period of high inflation.
“This may be down to increased energy bills and food prices soaring, with pensioners feeling that they need more each month just to get by,” said Jon Greer, head of retirement policy at Quilter, a firm of advisers.
“While the state pension will rise with wage growth going forward and help offset some of the costs, it will be far from enough for people to rely on.”
The data this week also revealed a surge in the number of savers breaching the annual savings allowance, exposing them to pension tax charges.
The standard annual allowance at the time the data was collected stood at £40,000. Savings into a pension above this threshold did not qualify for tax relief and were subject to clawback tax charges at the individual’s marginal tax rate.
The data showed that 53,330 savers breached their AA in the 2021-22 tax year — a 21.5 per cent increase on the 43,870 the previous year.
The total value of contributions reported via self assessment as exceeding the AA was £1.2bn in 2021-22 — up from £814mn in the previous tax year.
In 2021-22, 11,660 lifetime allowance charges were reported by pension schemes — a steep increase on the 8,820 charges in the previous tax year.
In his spring Budget, chancellor Jeremy Hunt increased the annual allowance to £60,000 and also abolished the LTA.
“This all goes to show that, previous to Jeremy Hunt’s raising of the AA to £60,000 and effective abolition of the LTA from April 2023, there was a rapid expansion in the number of pension savers falling foul of both these thresholds — quite possibly due to low levels in the take-up of financial advice in these potentially complex areas,” said Henrietta Grimston, associate director in financial planning at wealth manager Evelyn Partners.
“In the case of the LTA — which had been frozen since 2021 — a saver could also be punished not just for saving too much, but for the investment performance of their savings. With the current effective abolition of the LTA, this particular danger has for the moment been removed.”
However, Grimston added that in a “changeable political landscape”, it remained to be seen whether the “loosening of the Treasury’s approach to pensions taxation persists”.
Source: Financial Times