The total value of flexible pension withdrawals fell by 17 per cent year-on-year in Q2 2020, from £2.8bn in Q2 2019 to £2.3bn, HMRC figures have shown.

There was a 1 per cent year-on-year increase in the number of individuals withdrawing from pensions, with 340,000 savers making withdrawals in Q2 2020.

However, this is a decrease on the number of people who flexibly withdrew their pension during the first quarter of the year (348,000), when a 23 per cent surge saw the number of people making flexible withdrawals hit record levels.

HMRC noted that this is contrary to “normal seasonal patterns”, as withdrawal numbers typically peak in Q2 due to the start of the new tax year, stating that this change in behaviour may be attributable to the impact of the Covid-19 pandemic.

The average amount withdrawn per individual during the period also fell, by 18 per cent year-on-year, with the average person withdrawing £6,700, compared to £8,200 in Q2 2019.

HMRC emphasised that this again runs contrary to typical withdrawal patterns, noting that this may also be linked to the impact of the ongoing pandemic.

It explained that since reporting became mandatory in 2012, average withdrawals have fallen “steadily and consistently”, with a “noticeable trend” of a peak in the second quarter of each year, which has not been seen this year.

More broadly, the data revealed that a total of £37bn has been withdrawn flexibly since the pension freedoms were introduced in 2015.

Industry experts have stated the figures are encouraging, with AJ Bell senior analyst, Tom Selby, pointing to the data as demonstration of savers using their common sense, saying that “when faced with the ultimate retirement income test”, many were ready to make immediate changes to keep plans on track.

He emphasised that “this year was like no other we have seen” due to the impact of lockdown and market volatility driven by the “unprecedented uncertainty” of the pandemic.

He continued: “For those taking an income while staying invested in drawdown – and particularly people in the early years of retirement - it is absolutely critical they stay engaged and are prepared to adjust withdrawals if markets plunge in order to stay on a sustainable path.

“Ploughing on regardless is a highly risky strategy and could result in you running out of money early.”

Hargreaves Lansdown senior analyst, Nathan Long, agreed: “Rather than panic and rush for the exits, savers have been restrained and reduced their withdrawals to offset falling investment values and dividend payments."

Long emphasised that using emergency cash reserves to supplement income from their pension is “exactly the approach savers should take”.

Aegon pensions director, Steven Cameron, also noted that savers who remain invested will benefit more when the stock markets recover, adding it is "particularly positive" to see average withdrawals down broadly in line with stock markets.

However, Royal London pension specialist, Helen Morrissey, argued that the fall in activity will likely be a “short-term blip”, emphasising that with £37bn withdrawn since the advent of freedom and choice it is “clear to see” that there remains a “strong appetite” for pension flexibilities.

This was echoed by Canada Life technical director, Andrew Tully, who noted that the sharp decline “isn’t unexpected” considering the reporting period covers the time when the UK was in lockdown and the ability to spend was limited.

He explained: “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.”

“People flexibly accessing their pensions for the first time need to be aware of the sting in the tail – the money purchase annual allowance – especially if they have future plans to continue paying into their plans.”

Just Group group communications director, Stephen Lowe, added that if there is a bounceback as people look to their pension to repair financial damage, savers should utilise the free, impartial and independent guidance offered by Pension Wise to “ensure they understand all the potential consequences” of doing so.

The HMRC figures follow research by the Association of British Insurers, which revealed that savers were "pressing pause" during lockdown, with the number of members enquiring about, or accessing their pension pot, falling “dramatically’ during lockdown.

Furthermore, research by PensionBee also revealed that the majority of savers were “saving more and spending less” during the start of the pandemic.

The latest withdrawal figures also follow the recent announcement of a Work and Pensions Select Committee inquiry into pension freedoms and the impact on savers.

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