Tax-free lump sum pension withdrawals halve during Covid-19

This is one of many pension protection measures noted during lockdown as savers face a volatile market and rising unemployment prospects.

Comparisons between April 2019 and April 2020 from the ABI found people choosing to access their pension as a flexible income fell by 42.2%, while the number of people withdrawing all their pension in one lump sum fell by 30.2%.

The number of people buying annuities fell by 56.3%, while overall queries from customers about their pension also fell by a third (31.9%).

ABI assistant director and head of long-term savings Rob Yuille said: "As Covid-19 struck there was a fear in the industry and in government that a pensions panic would hit, with mass pension withdrawals out of fear of stock market volatility and labour market uncertainty. So far, this concern couldn't be more wrong. Instead customers have been holding off in large numbers. 

"The pandemic is a harsh reminder of the uncertainty of how long your retirement might last, what it will look like and what it will cost. More than ever it has shown that when it comes to making decisions on your pension, you should get expert help."

The People's Pension head of policy Tim Gosling said it was "encouraging" to see people taking advantage of the government's financial support measures rather than withdrawing from pension pots.

"It remains to be seen whether there will be an increase in people accessing their retirement pots once schemes, such as furlough, come to an end but accessing savings should always be a last resort," he said.

Quilter head of retirement policy Jon Greer added: "It will be really important that as people confront these key retirement choices, financial advisers are on hand to provide expert guidance and pension companies encourage everyone to speak to a financial planner."

ABI figures also compared March 2019 and March 2020 in the immediate stock market volatility caused by the spread of coronavirus across the UK.

The number of people taking only a tax-free lump sum fell 29% while the number withdrawing all of their pension in one lump sum fell by a fifth.

Greer continued: "It remains to be seen how many people start dipping into their pension pot in the autumn, [but] the figures show that pension savers paused for thought before cashing in their life savings during the crisis.

"The fact there was a slowdown in withdrawals is reassuring and shows that on the whole, savers recognised that cashing in their pension during a dip in the market was unlikely to serve them well."

PensionBee chief executive Romi Savova said pension providers were still not doing enough to support savers through the pandemic, however.

"Consumers do not adequately understand how the pandemic affects their pension, and the majority have not been contacted by their provider about this, and are worried," she said. 

"Pension providers have a responsibility to support their customers, particularly during this time of economic uncertainty, and should offer easily accessible information on sustainable withdrawal rates to allow consumers to adequately plan for a happy retirement."

This comes as research from Aegon this morning (27 July) found advice relating to defined benefit to defined contribution transfers and access to pensions freedoms had increased by 12% and 22% respectively since the start of the pandemic.

Pensions director Steven Cameron said: "Without access to advice, there's a risk people will take panic action that might not be in their best interests and could do significant long-term harm."

 

 

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