Pension withdrawals up 67% since 2020

HMRC pension data out this morning shows soaring pension withdrawals and lifetime allowance charges.

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Key data

• Pension withdrawals soar – 1.1 million people withdrew £7.5 billion from their pensions between January to June 2023, an increase of 17% in the number of withdrawals since 2022 and a 67% increase since the same period in 2020
• More pension contributions - £11.9 billion contributions were made to personal pensions in Y/E 2022, up from £11.7 billion and 7.5 million people paid into private pension, up from 7 million
• More contributions by self-employed - £2.3 billion contributions were made by self-employed members in Y/E 2022, up from £2 billion
• More tax relief - pension tax relief cost £69 billion in Y/E 2022, up from £67 billion in 2020 to 2021. 
• Higher-rate taxpayers receive the lion’s share of tax relief - 40% of pension tax relief is for basic-rate taxpayer, 54% for higher-rate taxpayers and 6% at the additional rate
• Lifetime allowance charges hit £497 million in Y/E 2022, compared to £391 million in Y/E 2021
• Annual allowance charges - the total value of AA charges reported by schemes for tax year 2021 to 2022 was £335 million. This has increased from £202 million reported for 2020 to 2021

Alice Guy, Head of Pensions and Savings, interactive investor says: “It’s extremely worrying that so many more people are withdrawing funds from their pensions and at higher rates. Pension savings take years of dedication and hard work to build and it’s a huge concern that so many are having to dip into these savings, at potentially unsustainable rates.

“The raising of the state pension age means people often have a gap between winding down in the workplace, perhaps going part time, and receiving the state pension. We sadly see that many people in their mid-60s are struggling to make ends meet in years before they receive the state pension. This means that many older workers are facing a huge dilemma, often needing to focus on immediate needs over long-term financial goals.

“It’s encouraging that pension contributions and the amount received from pension tax relief both increased this year, showing that most pension savers are still managing to save for the future, despite a challenging financial environment.

“In a cruel twist, lifetime allowance charges soared last tax year, just before the charges were abolished this April. The rule changes were a complete surprise and many wealthy pensioners will be absolutely gutted to have triggered a 55% penalty, just months before the rules changed.

“Likewise, annual allowance charges were at a record high last tax year, just before the allowance was raised from £40,000 to £60,000 and there will be many disappointed pension savers who triggered a tax charge just before the rules changed.”