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The number of individuals over the age of 65 making lump sum withdrawals from their pension pots has hit a record high following the introduction of pension freedoms in 2015.

Data from HM Revenue & Customs, published by Salisbury House Wealth revealed that the number of over-65s withdrawing from their pensions increased by 38 per cent to 529,400 in June 2018/19, up from 384,000 in June 2017/18.

The number of lump sum pension withdrawals made by over-65s is increasing at a faster pace than that of under-65s. They have risen 23 per cent in the last year from 496,200 in 2017/18 to 611,700 in 2018/19.

According to the adviser firm, these increases are predominantly driven by individuals using pension freedoms rights.

Under pension freedoms introduced in 2015, individuals over the age of 55 are able to withdraw funds from pension pots, whereas previously they would have had to wait until they retired.

Savers are also no longer directed towards an annuity and may access their pot as a lump sum, buy a product that pays an income, keep it invested or can choose a combination of all three.

Individuals can withdraw up to 25 per cent of their pension tax free, after which withdrawals are subject to income tax at a rate of 20 per cent, 40 per cent or 45 per cent, depending on which tax bracket the saver falls into.

The tax-free amount can be taken as a single lump sum or as smaller regular sums, where 25% per cent of each withdrawal is tax-free.

Another driver of the increase in pension withdrawals from over 65s is the growth in bank of Gran and Grandad.

More grandparents are helping their grandchildren get on the property ladder, by funding the deposit through their pension.

The number of over-75s making pension withdrawals saw one of the largest increases of any demographic, rising 44 per cent to 69,1000 in 2018/19 up from 48,100 in 2017/18.

Salisbury House Wealth also found that volatile stock markets, coupled with government gilts at historically low yields, have encouraged more over-65s to either switch investments into cash in order to de-risk or to take out the funds.