In 2015 when pension freedoms were introduced it can as a boon as well as a bane for the public an investment corps respectively. According to some of the latest findings and stats by HM revenue and customs it is calculated that the public has withdrawn nearly £25bn since its start.
Pension freedoms had brought in a large number of new consideration to the table and the biggest among them is that one can withdraw any amount of money from their retirement plans after their retirement. This has brought major changes that one will not have to follow the annuity role anymore because annuity one will get pension throughout their life after retirement in small installments, however, no one can withdraw any amount and do whatever one wants. One can also withdraw their entire pension fund in a single go.
Since 2015 till the very first quarter of 2019 people have withdrawn amounts from their pension funds and for example, in 2019’s first quarter only 284,000 people had withdrawn £2bn from their retirement funds. However, there is a quarter based decrease in the average amount, as during the first quarter of 2016 the total average amount of £11,081 was withdrawn which is the huge amount as compared to the first quarter average withdrawal of £7,644 in 2018. And in 2019’s first quarter again there is a slight dip in the numbers as it hits £7,254. According to the stats, it is seen that 539,000 individuals have received their retirement payments in the last one year and £8.2bn has been already withdrawn by them.
All the data that is sourced by the HM revenue and customs are based on the number of flexible payments is withdrawn from pensions keeping in mind several types like drawdowns, partial withdrawal, full withdrawal and also buying of the flexible annuity. All the data is showing as compared to 2015 and 2016 retirees are taking care of their sustainability and is careful when it comes to cash withdrawals. This means they are using the pensions freedoms sensibly.
Rising costs of pension taxes
As mentioned by Tom Selby of AJ Bells, the graph is dropping downwards when it comes to the amount withdrawn per withdrawal but the overall number of people using pension freedom is on the upward trend which was initially expected as well. The government also has stabilized the tax reliefs on pensions ever since the freedoms regulations are published. The overall tax relief as increased from £1bn in 2016-2017 to £38.4bn in 2017-2018.
the increase in the cost pension tax means now the treasury is spending a lot more to enroll a larger number of people into the pension plans. this has also increased the number of people saving in pension funds remarkably. This is the reason why the system has stopped tinkering with the tax costs. Because whenever it tried reducing the cost it has only given rise to various other complications like a lesser annual allowance for the employees. therefore they should put a stop to further fiddling otherwise it can crumble a stable system in the long run.