People withdrew a total of £2.6 billion in flexible payments from their pension pots in the first three months of this year.
The latest official figures show that 383,000 people made flexible withdrawals in the first quarter of 2021, up 6% on the same period last year.
Despite the rise in the number of people taking flexible pension withdrawals, the average amount of each withdrawal fell by 4% to £6,800. Back in the first quarter of last year, people flexibly withdrew an average of £7,100 each.
When comparing the 2019/20 and 2020/21 tax years, the overall number of payments and number of individuals increased, but the total value of flexible payments fell by £220 million.
Since pension freedoms were first introduced in April 2015, more than £45 billion has been flexibly withdrawn from pension pots, according to HM Revenue and Customs.
Commenting on the latest official figures, Andrew Tully, technical director at insurer Canada Life, said:
“We’ve hit a record high for the number of people choosing to withdraw from their pension this past quarter but looking back over the pandemic year the overall value of withdrawals are down from the peak. This is likely down to the inability to spend on big ticket items like holidays, but people have been bolstering their finances using their pensions as bank accounts. The issue here is the unintended consequences of the Money Purchase Annual Allowance that could come back to bite them, if they continue to contribute to their pension.
“It continues to be essential that anyone choosing to access their pension for the first time is aware of the Money Purchase Annual Allowance. With the limit set dangerously low at £4,000 it could severely limit the amount you are able to save in the future. Particularly given the impact of the pandemic, we need to consider a significant increase to the allowance or better still remove it altogether.
“A recent Canada Life survey of working adults over 55 has found that more than one in ten (14%) of them have flexibly accessed their pension over the last year. However, two fifths of all respondents were unaware of any restrictions, such as the MPAA on the amount they can continue to contribute to their DC pension pot.
“Worryingly, 40% are aware of the restriction but uncertain about the detail. Many overestimated the allowance as almost £7,000 a year. Almost double the real MPAA limitation of £4,000. Exceeding the MPAA can lead to tax penalties for people at every earnings level. It means future contributions to defined contribution schemes are limited to £4,000 a year, and people lose the ability to carry forward unused allowances from the previous three tax years.”