A total of £10.6bn was flexibly withdrawn from pensions in 2021/22, up from £9.58bn in 2020/21, figures from HMRC have revealed, with the total value of flexible pension withdrawals since the introduction of pension freedoms in 2015 now exceeding £59bn.

A record £3.6bn was flexibly withdrawn from pensions in the most recent quarter from 1 April and 30 June 2022, marking a 23 per cent increase on the same period in 2021 when £2.9bn was withdrawn.

A total of 508,000 individuals made the withdrawals, resulting in an average taxable withdrawal of £7,000 during the quarter.

This was in addition to £2.3bn worth of flexible withdrawals by 403,000 individuals in Q1 2022, with an average taxable withdrawal of £5,700.

The "dramatic" figures have prompted some concern amongst industry experts, with LCP partner, Steve Webb, highlighting the figures as "the clearest sign yet that people are turning to their pensions to help them with the cost-of-living crisis".

"For those who have run down cash savings, it seems that the pension is their next port of call," he continued. "It would be worrying if the only way people could cope with the cost of living crisis was by ravaging their living standards in retirement”.

Canada Life technical director, Andrew Tully, shared these concerns, clarifying that while it is "completely understandable that people are prioritising heating and eating above their savings at this difficult time", the industry should be ready to support savers.

"It is important the industry – government, providers and advisers – help make sure people make the best decisions – dripping funds out gradually rather than all at once can save tax," he explained.

Indeed, Tully reiterated concerns that savers withdrawing their pension flexibly may be caught out by the money purchase annual allowance (MPAA) limits in future, which could present an issue for those who plan to continue working and contributing.

This was echoed by Just Group group communications director, Stephen Lowe, who pointed out that while Q2 typically sees the highest volume of money withdrawn, "we have never seen more than £3bn accessed, let alone more than £3.5bn".

“The underlying worry is that people may be taking a chunk out of their pension for the first time to tide them through the cost-of-living crisis but are unaware of the long-term consequences," he continued.

"They may have plans to increase their savings in the future to make up for what they’ve withdrawn, but by triggering the MPAA they significantly limit the tax relief future pension savings will attract – making that saving much harder work.

“We really don’t know how many people understand the longer-term consequences of taking their first flexible payment."

Quilter head of retirement policy, Jon Greer, agreed, calling on the government to relax the allowance in light of the cost-of-living crisis.

"We believe the Chancellor should relax the MPAA triggers for at least the current tax year in order to avoid this double-whammy for people forced to use pension cash in the crisis," Greer said.

"It’s high time this inflexible rule was scrapped in favour of a general anti-abuse approach similar to that taken for existing pension recycling rules, which gets to the crux of HM Treasury’s concerns."

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