Savers withdrew more than £2.4 billion from flexible pensions in the last three months of 2020, marking a 6% increase in withdrawals' total value compared to the same period the previous year.
The new data from HMRC covers flexible pensions and reveals that the number of individuals withdrawing money from their pension savings under the freedom tax rules also increased compared to 2019.
The number of people opting to withdraw money from their pensions in the period from October-December 2020 was 10% higher than the year before and, unusually, represented a peak period in 2020.
In a statement, HMRC pointed out that the number of withdrawals tends to dip in the final months of the year, after peaking in the early summer.
This changed in 2020, as the usual summer peak was replaced with a trough, and the prime-time for withdrawals shifted instead to the end of the year.
This behavior change may be attributable to the impact of the COVID-19 pandemic,reads a statement from the department
However, despite rises in the total value of pension withdrawals and the number of people taking out money, the average withdrawal value was lower than that for the last quarter of 2019.
Between October and December 2020, the average withdrawal was £6,600, down 3% from an average of £6,600 the year before.
AJ Bell Senior Analyst Tom Selby cited pent-up demand, and financial pressures brought about by the pandemic as possible reasons for the increase in the number of people leaning into their retirement savings for support.
In light of this, he tweeted a statement calling on the government to review tax thresholds on flexible pension withdrawals:
People might be accessing taxable income from their pension for the first time because of income uncertainty or to help a struggling relative. It feels grossly unfair to punish such actions with a cut in the annual allowance from £40 000 to £4000, Chancellor Rishi Sunak should review the Money Purchase Annual Allowance given the very tough circumstances many are facing.said AJ Bell Senior Analyst Tom Selby
In 2015, HMRC introduced the 'freedom tax rules,' allowing members of specific pension schemes to access their savings early, provided they had reached the minimum pensionable age of 55 years old.
At the same time, it dramatically lowered the threshold for tax-free contributions on flexible pensions from £40 000 per year to £4,000. This threshold is known as the Money Purchase Annual Allowance (MPAA).
Since the changes took place, more than £42 billion has been withdrawn by individuals on flexible pensions.
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