The amount withdrawn from pension pots in 2017 increased to £6.5bn, up from £5.7bn in 2016, new data from HMRC has found.

In total, since the pension freedom reforms were launched in 2015, there has been almost £16bn withdrawn from pots. However, the statistics reveal that average withdrawals per quarter are continuing their downward trajectory, with the average withdrawal being £7,596 per individual in Q4 2017.

The number of individuals encashing their pots has remained steady in 2017, with 176,000 recorded in Q1, 200,000 in Q2 and Q3 and 198,000 in Q4. Those in the industry now believe withdrawing money from your pension pot is the “new norm”.

Commenting, Royal London director of policy Steve Webb said: “These new figures show that withdrawals under pension freedoms are now settling down to a steady level. Roughly 200,000 people are using the freedoms each quarter and are withdrawing a steady £1.5bn per quarter. This is very much the new normal and suggests that a significant number of those at or in retirement continue to value the flexibility given by the new legislation. However, it remains important that individuals take expert advice to make sure that the withdrawals from their pension fund are sustainable in the long-term.”

Furthermore, Just group communications director Stephen Lowe also said that taking cash from a pension pot is becoming the “new norm for millions of people”.

“Savers are enjoying the flexibility of being able to exercise greater choice about how to use their pension savings. More than £6.5bn was withdrawn last year, up 15 per cent from 2016, and there’s a school of thought which says that much money can’t be wrong. But the truth is we don’t know – the industry still has little idea whether these savings are being used sustainably.”

The publication of the statistics has renewed calls from the industry for the Financial Guidance and Claims Bill to include a kind of automatic guidance. Lowe said that for millions of people, automatically enrolling them into free impartial guidance is a positive step and should lead to them achieving a safer and better outcome.

“Combined with a midlife financial MOT, a free and impartial guidance service will address many of the problems people face. Scams, paying too much tax, thinking about their options too late and making poor choices of uncompetitive and perhaps ill-suited products are just some of the mistakes savers make – often because they simply didn’t have any guidance to help them make a better decision,” he said.

However, AJ Bell senior analyst Tom Selby said such an idea risks causing more harm than good. “Placing a guidance barrier in the way of savers at the point they are accessing their pension – when they have already decided, possibly having already consulted Pension Wise, that they want the money – risks creating a tidal wave of complaints. It would be much better to nudge people to guidance before they have reached this point,” he said.

“Furthermore, it is not clear to us why ‘accessing the freedoms’ requires an automatic guidance appointment while buying an annuity does not. Alongside this, we remain entirely in the dark on how this will be implemented or what it will cost – one would imagine booking potentially hundreds of thousands of guidance appointments won’t come cheap. If providers are required to fund this, the extra cost will inevitably be worn by consumers.”
“Boosting take-up of guidance and regulated advice is clearly a good thing, and would benefit providers like AJ Bell who actively compete in the open market.”

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