Drawdown cash withdrawals to surge over next 2 months, Hargreaves Lansdown says

As we approach the end of the tax year, Hargreaves Lansdown has predicted that more do it yourself (DIY) drawdown investors will take out cash, as the average amount taken increases by 28 per cent in March and 40 per cent in April, with 15 per cent of all pension cash outs occurring in March.

According to Hargreaves Lansdown, the tax year is a “huge catalyst” to remove money from pensions, with DIY drawdown investors managing their money carefully to avoid unnecessary tax.

However, the spike in average withdrawals comes despite March and April not being the most popular months for people to withdraw from their pensions. Hargreaves Lansdown reported that December is the most popular month for people to withdraw from the pensions, as more savers opt to draw smaller amounts to cover the cost of Christmas.

June and September also see high withdrawal levels as summer holidays tempt more people to withdraw.

Commenting, Hargreaves Lansdown senior analyst Nathan Long said: “Despite the pension freedoms being introduced at breakneck speed, there’s mounting evidence most pensions savers are managing their money sensibly and are actively minimising their tax liabilities. Rather than pulling money out irrespective of timing and tax implications, it seems many DIY pension savers are actually carefully managing their income according to their tax allowances.

“The FCA and the government are introducing valuable measures to further simplify the process of navigating retirement but in the meantime this is welcome evidence many people are perfectly able to manage their own affairs.

“Drawing from your pension investments is a riskier business than buying the guaranteed income of an annuity. Aim to hold at least one years’ worth of income as cash if you are using drawdown so you are not forced into selling your pension investments at a low point if the market falls.”

Almost half (44 per cent) of DIY drawdown investors have only moved part of their pension into drawdown, as this technique allows only enough tax free cash to be taken and, according to Hargreaves Lansdown, is a further sign that savers are managing their money wisely.

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