Latest figures from HMRC show that 121,000 payments were made in the second quarter of 2015, the year pension freedoms were introduced, but this number soared to 628,000 between September and December last year. Pension freedoms allow people aged 55 or over greater flexibility when using their pensions to provide them with an income at retirement, enabling them to access their money whenever they want. You can find out more about pension freedoms in our blog Pension freedoms: an overview. In total £1.9 billion was withdrawn from pension schemes by 264,000 people in the final quarter of the year, HMRC said, although average withdrawals per person fell to a record low of £7,197, down from £7,597 in the previous three months. This may be due to stock market volatility, which could have prompted some to reduce their withdrawals to ensure their savings will last them for the whole of their retirement.
Before taking money out of your pension
If you’re considering making withdrawals from your pension, there are several things you should consider first. Most importantly, remember that your pension may have to last you a very long time, so think carefully about the impact any withdrawals you make could have on your retirement income later. You should also think about how your pension funds are performing before you take money out. If markets are turbulent and you make a big withdrawal, this could leave you with a shortfall in future. Find out about the effect of market volatility on your retirement savings in our blog What stock market volatility means for your pension. It’s vital to consider the tax implications of taking money out of your pension too. The first 25% of any withdrawal is tax-free, but the remainder is subject to tax at your marginal rate, so if you’re a basic rate taxpayer that’s 20%, rising to 40% or 45% if you’re a higher or additional rate taxpayer. If you make a large withdrawal, this could potentially push you into a higher tax bracket. Taking money out gradually might help you keep you to keep your tax bills down. If you’re not sure about your options at retirement, or how much income to take from your pension, seek professional independent financial advice.