The number of people taking payments from their pensions has hit record levels this year with HMRC’s official statistics showing over 500,000 payments were made to 222,000 individuals in the first three months of 2018.
Since April 2015, those who have reached retirement age have had more flexibility in how they use their pension pots, deciding when and how to use them rather than having to purchase an annuity.
At the time the rules were introduced, many were concerned that pensioners could fritter away their pension pots which led the then pensions minister, Steve Webb, to comment that ‘if people do get a Lamborghini, and end up on the state pension...that is their choice’.
Alongside these record pension withdrawal figures, Lamborghini have also published correlating record-breaking sales results with over 350 sold in the UK in 2017. So is the surge in luxury car sales in part funded by the new freedoms enjoyed by pensioners?
Delving into the HMRC statistics in more detail, the total amount withdrawn by individuals in the first quarter of 2018 is slightly under £1.7bn. Given the number of individuals receiving payments was 222,000, this equates to an average pension payment of £7,645 (a sensible deposit towards a hatchback perhaps).
The latest statistics appear to indicate a general downwards trend each year in the average pension payments which were significantly higher in 2015 (approximately £15,000) when the pension freedom rules were first introduced but seem to have settled down after that.
That appears to support the view that pensioners can be trusted with their own pension pots although there is potentially one concern to keep an eye on.
The total number of payments of 500,000 in the first quarter of 2018 has increased substantially over the last 3 years whilst the increase in total payments is more modest. From that, it might be concluded that payments are being made from a larger number of small pensions pots rather than by those with large pensions.
If that is right, it could lead to a larger number of people with limited pension provision compared to a minority with larger pots, putting the issue of wealth inequality for those in retirement under the spotlight if the trend continues.
That issue should be monitored but on current evidence, it appears any immediate concerns that the Eastbourne seafront will become congested with supercars are unfounded.
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