Drawdown cash withdrawals ‘set to surge’

As the end of the tax year approaches Hargreaves Lansdown has predicted a surge in drawdown cash withdrawals. The firm pointed to figures which showed average income taken increases 28% in March and 40% in April, with 15% of all pension cash outs occurring in March. The firm says the tax year was “a huge catalyst to remove money from pensions”, with DIY drawdown investors managing their money carefully to avoid unnecessary tax. The analysis, based on statistics gathered in relation to more than 12,000 withdrawals, showed that March and April see the highest average withdrawals per investor.The spike in average withdrawals came despite March and April not being the most popular months for people to withdraw from their pensions. December remained top in this sense, as more savers opt to draw smaller amounts to cover the cost of Christmas. Summer holiday spending also tempts more people to withdraw from their pension with June and September seeing high withdrawals, Hargreaves Lansdown says. Almost half (44%) of DIY drawdown investors have only moved part of their pension into drawdown. This allows only enough tax free cash to be taken and is a sign that savers are “managing their money wisely”. Those cashing out from their pension are also doing so with a great awareness of the tax implications, 15% of all UFPLS payments made occur in the month of March right at the end of the tax year.Nathan Long, senior analyst at Hargreaves Lansdown, said: “Despite the pension freedoms being introduced at breakneck speed, there’s mounting evidence most pensions savers are managing their money sensibly and are actively minimising their tax liabilities. “Rather than pulling money out irrespective of timing and tax implications, it seems many DIY pension savers are actually carefully managing their income according to their tax allowances. “The FCA and the Government are introducing valuable measures to further simplify the process of navigating retirement but in the meantime this is welcome evidence many people are perfectly able to manage their own affairs. “Drawing from your pension investments is a riskier business than buying the guaranteed income of an annuity. “Aim to hold at least one years’ worth of income as cash if you are using drawdown so you are not forced into selling your pension investments at a low point if the market falls.”

Drawdown cash withdrawals ‘set to surge’

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