Savers have responded “prudently” to Brexit uncertainty and market volatility by cutting pension withdrawals.
Ahead of the fourth anniversary of the introduction of pension freedoms, an AJ Bell survey found that regular annual withdrawals were on average 4.7 per cent of the fund value – a third lower than 12 months ago.
Expected investment returns also fell from 4.83 per cent to 4.15 per cent.
Pension freedoms were introduced in April 2015 as part of a government plan to give people over 55 more choice over what to do with their savings.
It enables pensioners to withdraw 25 per cent of their pension pot tax-free and the remainder taxed at the individual’s income tax rate.
“Pension freedoms investors appear to be responding sensibly to difficult market conditions and Brexit uncertainty,” senior analyst at AJ Bell, Tom Selby said.
“The fact many people are adjusting their investment expectations and cutting withdrawals in response to negative returns is an encouraging sign,” he added.
The study found that £23.6bn worth of pension freedoms withdrawals were recorded by HMRC between the second quarter of 2015 and the end of 2018.
More than £7bn of that has been used for day-to-day living, while almost £4bn has been used for luxury items, such as holidays and new cars.
Selby added that a “staggering” £3.3bn was being withdrawn from pensions and being put into a bank account.
“These savers face double jeopardy as they risk paying unnecessary tax on withdrawals and seeing the value of their pot eroded by inflation – particularly where their bank account pays 0% interest.
“They also miss out on the opportunity to grow their pot over the longer term by investing in the stock market.”
Another report, published by investment manager Killik & Co yesterday, concluded that pre-retirees had been prudent in resisting the urge to “raid pensions” over the past four years.
Half of respondents have used a defined benefit pension, guaranteeing a certain level of income throughout retirement.