£4.7bn is withdrawn under pension freedoms

Approximately £4.7 billion has been withdrawn under the pension freedoms since they were introduced in April 2015, according to research by the Association of British Insurers (ABI).

The data indicates that £2.85 billion was invested in income drawdown products during the period, with an average fund of almost £65,000.

The figures also show that:

  • £2.17 billion was invested in 40,600 annuities, with an average fund of almost £53,300.
  • £2.5 billion was paid out in 166,700 cash lump sum payments, with an average payment of £15,000.
  • £2.2 billion was paid out in 606,000 income drawdown payments. The average payment size was £3,600.
  • 60% of pension savers changed provider when purchasing an income drawdown policy and 40% bought an annuity.
  • In the third quarter of 2015, 22,380 annuities were sold at a total worth of £1.17 billion, compared to 18,200 annuities worth £990 million in the second quarter. This represents the first quarter-on-quarter increase in annuity sales since the second and third quarter of 2012.

Dr Yvonne Braun (pictured), director for long-term savings policy at the ABI, said: “The peaceful pension revolution continues. While providers continue to meet high levels of demand, it’s clear that people are taking a sensible approach and considering how they will pay for their retirement.

“Despite some ringing the death knell for annuities, this seems to have been premature. An increasing number of people are recognising the value of a guaranteed income, with annuity sales rising this quarter.

“There are also initial signs that the number of people accessing their pension pot as cash is beginning to settle down, with larger pots continuing to be used to buy retirement income products.

“However, the figures also show that ensuring people save enough for retirement remains our key challenge. With life expectancy increasing and final salary pension provision declining, we must now turn our attention to helping customers grow bigger pots.”

HM Revenue and Customs’ (HMRC) Flexible payments from pensions: October 2015 statistical bulletin found that approximately 251,000 flexible payments from pensions were made in April-September 2015, with a total value of £2.72 billion. However, these figures only include data reported to HMRC; mandatory industry reporting does not come into effect until April 2016.

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Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “We have seen a series of reports on how the pension freedoms are working, with the ABI, HMRC and the Financial Conduct Authority (FCA) all publishing data and not all of it has been consistent.

“We think the FCA’s probably looks the most relevant and reliable but we shouldn’t be having to guess at this stuff.”