HM Revenue and Customs (HMRC) has reported that 340,000 people withdrew £2.3bn ($3.02bn, €2.55bn) in flexible payments from their pensions in the second quarter of 2020.
This is a 17% decrease year-on-year from Q2 2019, which saw withdrawals of £2.8bn.
The total value of flexible payments from pensions since the freedoms were introduced in 2015 has now exceeded £37bn.
Helen Morrissey, pension specialist at Royal London, said: “[The] figures show the impact of coronavirus with many people effectively pressing the pause button on their retirement plans.
“We expect this to be a short-term blip, with £37bn withdrawn since the advent of Freedom and Choice in 2015, it is clear to see there remains a strong appetite for pension flexibilities.”
Tom Selby, senior analyst at AJ Bell, added: “In the face of this, savers appear to have once again demonstrated their common sense.”
Change in behaviour
The HMRC data also shows a 1% increase in the number of people withdrawing cash compared to the same period in 2019 (336,000 people).
However, there has been a decrease in the number of individuals withdrawing compared to the previous quarter Q1 2020 (348,000).
Withdrawal numbers typically rise in Q1, before peaking in Q2, as this coincides with the beginning of a new tax year.
This change in behaviour “may be attributable to the impact of the covid-19 pandemic”, said the UK taxman.
Andrew Tully, technical director at Canada Life, said: “The sharp decline in pension freedom withdrawals isn’t unexpected when the reporting period covers the time when the UK was in full lockdown.
“The ability to spend was limited so the idea of using your pension as a cash machine for larger withdrawals for holidays or home improvements was hardly likely to appeal.
“People may also be wary of the prevailing economic headwinds and holding off from making larger planned purchases right now despite the governments best efforts to encourage us all to spend.
“We should look forward to the rest of the year to see how consumers use their pension savings, whether that be through pent up demand from lockdown, to prop up household budgets, or whether we see a return to more normal withdrawal behaviours.”
First time users
The figures also reveal that 59,458 people chose to take a flexible payment for the first time, which is about 10,000 fewer than in the average quarter.
Stephen Lowe, group communications director at Just Group, said: “It looks like people have been cautious and not felt the need to raid their retirement funds, which is positive.
“As we look forward, it will be interesting to see if there is a bounce back in those figures caused by people whose finances have been affected looking to pension money to repair some of the damage.”
In line with stock markets
The average value of each withdrawal has decreased by 18% to £6,700 from £8,200 at the same time last year.
Since reporting became mandatory in Q2 2016, average withdrawals have been falling steadily and consistently, with peaks in the second quarter of each year becoming a noticeable trend, however on this occasion we have not seen a peak in Q2.
This “may also be linked to the impact of covid-19”, HMRC said.
Steven Cameron, pensions director at Aegon, said: “Pensions are designed to provide an income throughout retirement and the more left invested while fund values remain depressed, the more you benefit if stock markets recover.
“So, it’s particularly positive to see average withdrawals down broadly in line with stock markets.
“Anyone concerned over how to best use their pension pot to secure an income for life should consider seeking financial advice.”