“In fact, the increase from 2019 to 2020 was smaller than any previous calendar year since the pension freedoms were introduced, in part because savers cut back on withdrawals in Q2 in response to falling stock markets."
Furthermore, the average per person withdrawal in Q4 (£6,583) is the lowest since April 2015, when pension freedoms came into play.
Robert Cochran, retirement expert at Scottish Widows, says even a small short-term increase is not something to worry about.
He comments: "While there has been a slight increase in the number of people taking money out of their pension during the pandemic, the average amount withdrawn per member is small and the total amount withdrawn is not growing worryingly.
"In fact, the amount withdrawn in the midst of the pandemic remains much lower than in the second quarter of 2019, where a record value of funds were encashed."
According to AJ Bell analysis, the reason total withdrawals increase every year is that more savers are taking a regular retirement income, which Selby says is "another positive sign", and suggests this pattern might continue for a long time.
However, he does acknowledge the dangers of people taking "significant" withdrawals from their DC pensions, and warns them to think "carefully" about the sustainability of those.
This is particularly pertinent for those people who are in the early stages of drawdown and took a severe hit as a result of the Covid sell-off last March and April.
Selby adds: "This is one of the reasons it is crucial to stay engaged in drawdown and regularly review both your assets and your withdrawal strategy.”
Getting back on track
There is nothing wrong with using the flexibility brought in by the 2015 pension freedoms regime.
Steven Cameron, public affairs director for Aegon, says the freedoms with DC pensions from age 55 can be "hugely helpful, allowing people to use their pensions to support themselves financially in very flexible ways".
However, he warns: "This does come with risks of taking too much out too soon and their pension pot not being adequate to provide them with an income throughout life.
"There is also a risk that people draw from their pension flexibly from age 55 to cover a short-term loss of employment but then rejoin the workforce and find they are unable to ‘catch up’ because the money purchase annual allowance restricts contributions from them and their employer to £4,000."
This is why Aegon would like to see the MPAA lifted to at least £10,000. In any case, he urges people who have drawn down more the past year or so to "seek professional advice".
