Over 230,000 withdraw money from pensions
Over 230,000 people have withdrawn money from their retirement savings, since pension freedoms were introduced a year ago.
In April 2015, the government introduced a range of pension freedoms to allow anyone aged over 55 to take money out of their pension pot, and only pay income tax. Prior to April 2015, those looking to withdraw money from their pension had to pay a 55% tax charge.
Since the freedoms were introduced, the Treasury has suggested that 232,000 people withdrew around £4.3bn from their retirement funds.
These figures include those taking flexible drawdown, where a person takes a regular income from their savings, which would remain invested. Annuities were also included within the figures, which is the traditional method of funding a retirement, where a person sells their pension pot to a third party in return for a guaranteed income for life.
These figures are actually much smaller than what the Financial Conduct Authority (FCA) had originally predicted.
However, it has been suggested that pension funds underreporting to HMRC could have affected the figures, leading to the Treasury admitting that the figures were “not comprehensive”.
It did not become compulsory for pension funds to report to HMRC when cash is withdrawn until this month. As a result, 179,000 people were reported to have withdrawn money from their pensions in the third quarter of 2015 alone, whilst it is estimated that 74,000 people withdrew a total of £820m from their pension savings in the first three months of 2016.
Originally, there were fears that people would cash in their pension pots and spend their money too quickly. However, the FCA has claimed that the majority of people have used withdrawals to buy an income, whilst the pots that have been fully cashed in are generally only small pension pots.
Harriet Baldwin, economic secretary to the Treasury said: "It's only right that people should have a choice over what they do with their money and in their first year our successful pension freedoms have already given thousands of people access and responsibility over their hard-earned savings."
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