Abusing pension freedoms is simply not British (Birmingham Post article 15.08.2019)

Being steadfast, sensible and taking time to consider important matters is part of our national character … and that applies equally to financial challenges.

So no surprise then that most, but not all, have taken pension freedoms in their stride.

By and large talk of people blowing their pension pots on fast cars, luxury yachts and expensive holidays haven’t happened.

The basic rules of the new regime are now widely understood.

The first 25 per cent withdrawn is tax-free.

Pension benefits can be taken as one or more payments a year for a number of years, several payments a year over a shorter timeframe or the full value of the fund in one payment. But excessive withdrawals, taking your whole pot as cash, is likely to land you with a large tax bill.

Withdrawals are subject to income tax at your marginal rate of either 20 per cent, 40 per cent or 45 per cent. Your pension income will also be added to your total annual income, so could push you into a higher tax bracket.

Hence the average amount being accessed is relatively low and falls within the personal allowance.

Per individual in Q2 that figure was £8,200, down from £8,600 in the same period of 2018.

But there are other interesting trends which illustrate the extent to which savers have got the hang of the changes.

Income from money purchase schemes is being used to top up state pension or final salary income. You can start taking pension money from age 55 allowing some to bridge an income gap until state pension becomes payable. And individuals are now more comfortable that on death any cash that remains can be passed on to other family members and will not go to waste.

Savers are being commendably restrained whilst exploiting pension freedoms to the full.

Quarter two saw £2.75 billion withdrawn from pension pots, a 21 per cent increase on the year before, the latest data reveals.

Figures published by HM Revenue and Customs (HMRC), revealed there was also an increase in the numbers making withdrawals, 336,000 against 264,000.

Larger value withdrawals at this point in the calendar have in the past been more typical as some taxpayers plan these around the start of the tax year. But this time it has instead all been about increased numbers of individuals withdrawing.

In total over £28 billion has been withdrawn from pensions since the reforms were introduced in 2015. Approximately 1.2 million individuals have accessed flexible payments, and a total of 6.9 million payments have been made.

Royal London pensions specialist, Helen Morrissey, told Pension Age magazine: “Enthusiasm for the pensions freedoms remains high with a record level of withdrawals and a record number of people taking money out.

“It indicates that people are taking a prudent approach of taking smaller amounts as and when they need it as opposed to taking all of the money at once. This flies in the face of initial fears that people would empty their pots and leave themselves vulnerable in later retirement.”

Aegon pensions director Steven Cameron, noted: “With people no longer choosing to retire at a single point in time the freedoms give them the flexibility to transition into retirement by accessing some retirement savings to help support a reduced working pattern. Older workers want to be able to plan their retirement on their own terms and the introduction of pension freedoms enables that by allowing them to reduce their working hours while enjoying more leisure time.”

Retirement planning, once the dull preserve of the proverbial annuity, never used to be this exciting!