The total value of taxable payments withdrawn flexibly from pensions since 2015 when the pension freedoms were introduced is £72.2bn, HM Revenue and Customs (HMRC) has revealed.

In its annual update on private pensions statistics, which includes the most recent data for flexible pension payments under the pension freedoms rules, HMRC found that in Q2 2023, 567,000 pension members withdrew £4bn, an increase of 17% compared to the same period last year.

In 2022/23, £12.9bn was withdrawn, up from £11.2bn in 2021/22, with £9.2bn withdrawn in 2020/21.

Retirement income director at Canada Life, Nick Flynn, said: “The floodgates have well and truly opened as record amounts are being stripped from pensions. While there is no need hit the panic button, I hope these people have a backup plan to be able to generate a wage in retirement.

“The current cost of living crisis may be driving some of this behaviour, and no doubt pent up demand following the pandemic will also be behind these record withdrawals. It is important as an industry for us to continue to focus on providing support to ensure people are helped to make the best decisions, including phased withdrawals to make sure they are as tax efficient as possible.

“With annuity rates having experienced such a dramatic positive shift, with a typical income in excess of 7% for a 65-year-old, people can balance the need for income security to pay the bills and also retain flexibility in a very efficient way.”

The data also found that the number of people, including the self-employed, contributing to private pensions was also increasing, with seven and a half million people making contributions between 2021/22, up by 500,000 from the year before.

HMRC said that this is likely due to the impact of COVID-19 on working, retirement and contributing behaviours.

Furthermore, gross pension income tax and NICs relief in the same year is estimated to be £68.8bn, up form £67.3bn in 2020/21, with HMRC stating that the estimated net cost has remained stable at £48.3bn.

Head of direct contribution workplace savings at Broadstone, Damon Hopkins, said: “It is great to see an extra half a million savers making contributions to their personal pension. However, it perhaps reflects a challenging economic time with older workers dipping back into the workforce to top up their savings and reinforcing their financial buffer for later life.

“The data is a reminder of value of pension savings with employee contributions topped up by both their employer and the government through tax relief to the tune of tens of billions of pounds every year. As we cautiously begin to head towards sunnier economic times, starting to ratchet up these contributions will be crucial to achieving desired standards of living in retirement.”

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