£1.8bn withdrawn amid new pension cash freedoms
Pension savers withdrew more than £1.8 billion in the first two months of the new retirement freedoms, according to figures from the Association of British Insurers (ABI).
The data, released to mark 100 days since the reforms came into force, shows that during April and May, savers took out more than £1 billion in 65,000 cash withdrawals from pension pots. The average amount taken was £15,500.
Some £800 million of payments were also taken out by savers from income drawdown policies, in 170,000 withdrawals. Income drawdown is where someone leaves their pension pot invested but takes an income directly from it.
Meanwhile, pension savers put in £630 million to buy 11,300 retirement annuities and a further £720 million to buy 10,300 income drawdown policies.
The ABI said the average annuity was purchased with £55,750 and the typical fund put into drawdown was £69,900.
The ABI said this marks a changing trend from 2012, when nearly £1.2 billion annuity sales took place a month and £100 million a month was put into income drawdown products.
When someone buys an annuity, they use the money in their pension pot to buy a regular income. But annuities have been controversial in recent years due to disappointing rates and people not shopping around to get the best deal.
The pension freedoms, introduced on April 6, mean that instead of being required to buy an annuity with their defined contribution (DC) pension pot, people aged 55 and over can take their pots how they wish. Generally, 25% of the pot is tax-free and the remainder is subject to tax.
There have been some concerns following the launch of the new freedoms that not everyone has been able to use them how they wish. It is up to pension firms whether they want to offer the full range of flexibilities.
There have been reports of people trying to use the freedoms facing high charges for withdrawals or for switching to rival firms, delays in paying out cash and having to pay high sums for financial advice if they want to access their money.
The ABI recently launched a proposed "action plan" to help the take-up of the reforms go more smoothly.
The body said that in 45% of annuity sales in the first two months of the freedoms, savers chose a different pension provider rather than sticking with their existing one, suggesting that many customers are shopping around for the best deal. Some 52% of sales involving people buying an income drawdown product also involved customers switching.
The ABI's director for long-term savings policy, Yvonne Braun, said: "This is an important reminder that tens of thousands of people are successfully accessing the pension freedoms as intended and on the whole the industry has risen to the challenge of giving customers what they want.
"The data shows people with smaller pots tend to be cashing them out while those with larger pots tend to be buying a regular income product. It also highlights an increase in the number of people putting money into income drawdown products that can take advantage of the new freedoms."
A Treasury spokeswoman said: " Our pension freedoms have given people real choice and freedom over how they access their savings in retirement and we welcome the ABI's findings that show many people are shopping around for the best deal. This is a sign that our reforms are a success and that people can finally have real control over their hard earned money.
"We have also committed to launching a consultation which will look into how people can get quick, affordable and flexible access to their savings."
Pension Wise, the free and impartial guidance service, was set up by the Government to help people approaching retirement understand their options. People can call 0300 330 1001 to book an appointment.