Jump in pension savers accessing their pots after pandemic pressed pause

More pension savers are starting to withdraw funds after many pressed pause at the start of the coronavirus pandemic, according to insurers.

Comparing data from September with April, the volume of people taking their pension money in various ways has increased, the Association of British Insurers (ABI) said.

The pension freedoms give over-55s options to take money out in a variety of ways. They can cash all or some of their savings in or buy a retirement income called an annuity.

Generally, 25% of pots is tax-free and the remainder of withdrawals is subject to tax.

The ABI said the number of people accessing their pensions as a flexible income has increased by 56% between April and September this year. But it said withdrawals of all types remain below 2019 levels.

Comparing September with April this year – when a strict lockdown was in place across the UK – the number of people taking only a tax-free lump sum has increased by 55%.

The number of people withdrawing all of their pension in one lump sum increased by 94%.

The number of people buying annuities increased by 41%.

The ABI suggested the increase in withdrawals is due to a combination of factors.

They include some people returning to withdraw after pausing earlier in the year due to stock market volatility and some people needing the money after a change in circumstances. Many households have suffered income shocks from job losses, pay cuts and furloughing.

The ABI said data from August and September suggest withdrawal levels are getting closer to those seen in 2019. But it added that many pension savers are still resisting the urge to raid their pension pots in the face of continued financial uncertainty.

It is urging anyone considering accessing their pension to seek impartial financial guidance from the Government-backed Pension Wise service, or regulated financial advice, and to ask their provider about their options.

Rob Yuille, head of long-term savings policy at the ABI, said: “Government restrictions, stock market volatility and employment prospects are just some of the factors weighing on pension savers’ minds when considering taking money out of their pension pot.

“Everyone is different and it is important to find the right solution for your circumstances. Getting financial advice or guidance can help provide options and clarity on what to do with your savings.”

Here are Mr Yuille’s tips for what to consider if you are thinking of withdrawing money from your pension:

Familiarise yourself with the pensions freedoms so you know your options. You can do a lot more with your pension pot than previously. What risks are you willing to take?

Consider how much money you will need each month to maintain your lifestyle. Do you want to have annual holidays? Do you still have a mortgage to pay off? What other sources of income do you have and do you need your pension to keep up with inflation? Could you consider working for longer?

Think about costs later in your retirement. Care needs are not a subject we are comfortable thinking about but it is important to have conversations about it with your family, as well as powers of attorney, wills and inheritance.

Consider your health and life expectancy. We often vastly underestimate this but evidence shows we are mostly living longer, with a growing variation in healthy life expectancy. If you have a partner, do you need to provide for them financially after you die or are you relying on them?

Use sources of help. Use the Government’s Pension Tracing Service if you think you might have a lost pension pot, take a “midlife MOT” from the Money and Pensions Service or your employer and make use of Pension Wise or a financial adviser.