A total of £2.4bn was withdrawn from pensions flexibly in Q4 2020, representing a 6 per cent year-on-year increase and bringing the total value of flexible withdrawals since the introduction of pensions freedoms in 2015 to over £42bn, HMRC has confirmed.

The withdrawals were made by around 360,000 individual savers, a 10 per cent increase from the 327,000 seen in Q4 2019, and a 4 per cent increase in the number of individuals withdrawing compared to Q3 2020.

HMRC noted that this behaviour has bucked previous trends, with October, November and December typically seeing a slight drop in the number of individuals withdrawing, which it said may be as a result of the impact of the pandemic.

The latest data has prompted concerns from industry experts, with some organisations calling for the Money Purchase Annual Allowance (MPAA) to be scrapped in light of the pandemic and the potential impact on savers.

Canada Life technical director, Andrew Tully, said: “We have now seen more than £40bn withdrawn from pension savings since the inception of pension freedoms in 2015.

“A huge sum of money to be withdrawn in a five-year period. This continued growth in the number of individuals accessing their pensions implies that we are seeing more and more working people look to their pension pot to manage their expenses or cover unexpected costs.

“It is absolutely essential that anyone choosing to access their pension for the first time should be aware of a potential sting in the tail – the MPAA.

“This is especially important for those of working age who want to continue paying into their pension. With the current savings limit set dangerously low at £4,000 it could severely limit the amount you are able to save in the future.

“Particularly given the impact of the pandemic, we need to consider a significant increase to the allowance or better still remove it altogether.”

Echoing this, AJ Bell senior analyst, Tom Selby, warned that whilst the number of people accessing their pensions increasing is "unsurprising", given the pent-up demand following the drop in withdrawals seen in Q2, there will "inevitably" be those who have had to access taxable income from their pension during this period as a result of the pandemic.

He said: “Given the exceptional circumstances that people have faced in the last 12 months, Chancellor Rishi Sunak should urgently review the MPAA these savers are currently subjected to.

“The reasons for taking taxable income from your pension could vary from replacing lost salary from employment to helping a younger relative pay their bills or older relative cover care costs. But regardless of the circumstances, the MPAA is applied indiscriminately and permanently.

“This enormous annual allowance cut felt unfair during normal times, but at a time when many savers and their families are facing extreme financial hardship it seems particularly cruel."

He added: “Given the impact coronavirus will continue to have on people’s finances in 2021, there is a strong case for halting the application of the MPAA so people who access taxable income from their pension are not hampered in their ability to rebuild their retirement pot once this crisis is over.

“At the very least, the treasury should consider raising the MPAA back to £10,000 - the level it was set at when first introduced in April 2015.”

Industry experts have previously called for the government to scrap the allowance as part of its response to the pandemic, in order to support savers in rebuilding their pensions after the crisis, with 83 per cent of advisers supporting this proposal.

However, HMRC has also revealed that the average amount withdrawn per individual fell further during Q4 to £6,583, a 3 per cent year on year fall, and a decrease from the £6,700 average withdrawal recorded in Q3 2020.

Aegon pensions director, Steven Cameron, described this continued fall in the average amount withdrawn as "encouraging", highlighting it as evidence that over-55s
continue to exercise restraint during a period of stock market volatility.

Cameron also noted that the figures come on the eve of the launch of investment pathways, emphasising that with the popularity of pension freedoms "ever increasing", these pathways are designed to help steer individuals away from inappropriate investment approaches.

"However," he warned, "they will not help in deciding how much income to take. Pensions are designed to provide an income throughout retirement and investment pathways do not replace the need for tailored professional financial advice."

Indeed, Aegon has previously warned that the pathways should not be seen as a substitute for personalised financial advice, with industry research also recently revealing that less than half (44 per cent) of prospective drawdown customers say they'll use Investment Pathways.

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