Pension freedom stats show 393,000 people took out £6.45bn from pension pots
I doubt many Lamborghinis have been bought with the cash, but taking money out of a tax efficient pension to simply reinvest or put in a savings account, having paid tax on some or all of it, is not a sensible course of action.
The latest pension freedom stats from HMRC show 393,000 people took out £6.45bn from pension pots in tax year 16/17. That’s an average of around £16,400 per person.
Retirement Advantage’s recent research reveals how people are using this money:
- 28% spent the cash on home improvements
- 26% put the money in a savings account, while 19% invested the money elsewhere
- 19% went on holiday
- 13% bought a new car
- 12% paid off the mortgage or other debts
Andrew Tully, Pensions Technical Director at Retirement Advantage, said: ‘I doubt many Lamborghinis have been bought with the cash, but taking money out of a tax efficient pension to simply reinvest or put in a savings account, having paid tax on some or all of it, is not a sensible course of action.
‘From the Government’s point of view this is a tax bonanza. In the recent Budget, HM Treasury admitted the pension freedoms have raised far more tax than anticipated - £2.7 billion between April 2015 and April 2017 compared to their original estimate of £0.9 billion. While it is a welcome boost to government coffers, the tax will have been a nasty surprise for many people taking advantage of the new freedoms. Paying tax on withdrawals was predicted to act as a natural brake on retirees withdrawing too much too soon, but this clearly hasn’t been the case.
‘With people living longer and inflation set to rise, it’s vital that people use their pension savings wisely to ensure their money lasts for the whole of their retirement. Getting professional financial advice is a crucial step for those approaching retirement to be sure they fully understand all their options and get the best outcome possible.’
Retirement Advantage is urging retirees to use online tools such as its pension withdrawal tax calculator, to understand the impact of tax rules on their savings: http://www.retirementadvantage.com/pension-tax-calculator.