Pension freedom rules have led to savers withdrawing a total of £33bn from their pensions in five years, but the average withdrawal amount is steadily decreasing.
Pension freedom rules mean those aged over 55 no longer have to purchase an annuity to access their pension income but can instead enter drawdown or take a cash amount.
Data published by HM Revenue & Customs showed in total, almost £33bn has been withdrawn from schemes since the introduction of the freedoms in April 2015.
From October to December 2019, £2.2bn was withdrawn from pensions flexibly, an 18 per cent increase from the £1.9bn taken in the same period in 2018.
However, the data showed the average amount withdrawn per individual from their pensions flexibly in Q4 2019 was £6,800, down 5 per cent from £7,200 in Q4 2018 and £7,250 in the previous quarter.
HMRC said average withdrawals have been falling steadily and consistently, with peaks in the second quarter of each year.
This was because people were phasing their withdrawals to minimise the amount of tax they have to pay, it stated.
The average withdrawal tends to be higher after the start of a new tax year as that is when individuals tend to plan their withdrawals.
Meanwhile, 327,000 individual withdrawals were made from pensions in Q4, a 24 per cent increase on the 264,000 in the same quarter last year.
Tom Selby, senior analyst at AJ Bell, said the industry was starting to see how savers were choosing to take their pensions using this new flexibility.
Mr Selby said: “It’s taken nearly five years but we are finally getting an idea of what ‘normal’ looks like in a world where people can spend their pension pot as they wish from age 55.”
Steven Cameron, pensions director at Aegon, said people should seek financial advice to ensure they leave enough funds behind to take later in retirement.
“Seeking professional financial advice can give peace of mind that your financial affairs are being taken care of, whether that’s about having enough secure income to cover the basics, taking a sustainable regular income, or investing wisely,” he said.
To speak with an adviser about your retirement provision, contact us on 0191 384 1008.