First anniversary of pension reforms shows we aren’t all cashing in and buying private jets
Only a fraction of savers raided pension war-chests proving that Britons are not nearly as weak-willed as was feared when pension rules were relaxed a year ago.
Reporting on the first anniversary of the "Freedom and Choice" reforms, the Association of British Insurers (ABI) said that over half of people had only drawn down a small lump sum from their schemes.
79,734 pension pots were subject to partial withdrawal. Of these, 45,641 drew down less than one per cent of their overall pension.
"The data shows that the freedoms have been implemented successfully, and are working as intended," said Yvonne Braun of the ABI.
Pension guru Tom McPhail of Hargreaves Lansdown was similarly impressed by the restraint.
“The ABI data backs up evidence from elsewhere, that the vast majority of pension savers are using the new freedoms well and making sustainable long term retirement income decisions," he said.
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"There was always a concern that people would make rash withdrawals and we are glad to see that this has so far not happened," said Fiona Tait of Royal London.
"One reason for this is the income tax levied on pension withdrawals beyond the 25 per cent lump sum, which may act as a ‘brake’ and make people think twice before taking money out of their plan. This tax ‘brake’ acts as a useful reality check to remind people to think about how to make best use of their pension," she said.
In April 2015, tax laws were changed to give people greater freedom and access to their pension schemes. The changes allowed up to 25 per cent of pension pots to be drawn-down tax-free. Pension income draw-downs were altered to be taxed at marginal rates rather than at the previous 55 per cent rate.
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Nevertheless, it wasn't all good news as 4.2 per cent (3,379) of those making withdrawals did take out at least 10 per cent of their pot in one-fell swoop.
"There is still more work to be done though. The ABI research indicates that a minority of investors may be running down their savings too quickly," said McPhail.