Ten years on from George Osborne’s pension freedoms bombshell, ten key stats which tell a story about retiring in Britain

by | Mar 14, 2024

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  • Next week (19 March) marks a decade since George Osborne’s 2014 ‘pension freedoms’ Budget bombshell announcement (Chancellor George Osborne’s Budget 2014 speech – GOV.UK (www.gov.uk))
  • The reforms, implemented in April 2015, ditched restrictions that previously applied to ‘drawdown’ and ushered in a new era of freedom and choice for millions of savers aged 55 and over
  • Over £70 billion has been accessed flexibly by Brits since April 2015, according to the latest available HMRC data
  • With most now choosing to stay invested through drawdown, improving the help available to these people through improved guidance and increased access to regulated advice is critical
  • AJ Bell looks at ten numbers that tell a story about shifting retirement patterns since the pension freedoms were unveiled

Tom Selby, director of public policy at AJ Bell, comments:

“It is almost a decade since then chancellor George Osborne’s shock pension freedoms announcement, arguably the most significant pension tax reform in almost a hundred years and a reform which has revolutionised the retirement income market. Where previously most people bought an annuity with their existing provider, with many ending up with a poor value product as a result, a world of choice and flexibility has been opened up to millions of ordinary savers.

“This flexibility has completely shifted the retirement kaleidoscope in the UK, with the majority now choosing to stay invested through ‘drawdown’ rather than buying an annuity. The annuity market has rebounded recently as rates have improved, but drawdown remains the most popular retirement income avenue.

 
 

“Brits can now build a retirement income plan to suit their needs, potentially combining the security of an annuity with the flexibility of keeping your money invested through drawdown. Reforms to pensions death benefits have also been a game changer, allowing people to pass on their pensions completely tax-free to loved ones if they die before age 75. If they die after age 75, tax is applied in the same way as income.

“These changes have been widely welcomed by savers, with more than £70 billion of pension cash accessed flexibly since 2015, according to the latest HMRC figures.”

Boosting help and addressing overtaxation

 
 

“Handing people total freedom over how they spend their own money also comes with risks and challenges. Keeping your money invested through drawdown requires engagement, ideally with the help of a regulated adviser, to ensure you are managing your withdrawals sustainably. Anyone who takes too much, too soon from their retirement pot will run the risk of exhausting their fund too early.

“Improving the support available to savers and retirees is therefore critical. The joint review being carried out by the Treasury and FCA on the advice guidance boundary is central to this, with the proposed ‘Targeted Support’ regime potentially enabling firms to offer more useful guidance to all. Promoting the benefits of regulated advice, which remains the gold standard when it comes to helping people make good financial decisions, is also crucial.

“While the pension freedoms have been a success overall, there remains an issue with the way withdrawals are taxed by HMRC. Since 2015, HMRC has chosen to tax the first flexible withdrawal someone makes in a tax year on a ‘Month 1’ basis.

 
 

“This means HMRC divides your usual tax allowances by 12 and applies them to the withdrawal, landing hard-working savers with shock tax bills often running into thousands of pounds. At the last count, approaching £1.2 billion had been repaid to those who had made claim – although we know most people simply don’t go through this process.

“While those who take a regular income or make multiple withdrawals during the tax year should be put right automatically by HMRC, anyone who makes a single withdrawal will likely be left out of pocket.

“It is possible to get your money back within 30 days, but only if you fill out one of three HMRC forms to reclaim your money. If you don’t, you are left relying on the efficiency of HMRC to repay you at the end of the tax year. It is high time these systems were upgraded so people who use the freedoms as intended aren’t forced to go crawling to the Revenue to get their money.”

Ten key numbers that tell a story about retiring in Britain since 2015

  1. £72.2 billion

The total value of pensions accessed ‘flexibly’ since the pension freedoms were introduced in April 2015. (Source: latest available HMRC data)

  1. 705,666

The number of pension pots accessed for the first time in 2021/22 (the most recent year official data is available). (Source: FCA data)

  1. 205,641

New drawdown policies entered into but not fully withdrawn in 2021/22 (the most recent year official data is available). (Source: FCA data)

  1. 68,514

Number of annuities purchased in 2021/22 (the most recent year official data is available). (Source: FCA data)

  1. 33.4%

Proportion of plans accessed for the first time where plan holders took regulated financial advice in 2021/22 (the most recent year official data is available). (Source: FCA data)

  1. 40%

Proportion of regular drawdown income payments withdrawn at a rate of over 8% of the pot value in 2021/22 (the most recent year official data is available). (Source: FCA data)

  1. 6%

Proportion of people aged 55+ who were saving in a defined contribution (DC) pension in May 2022 who said they had fully encashed the pension, or taken out a lump sum, to cover day-to-day expenses. (Source: FCA Financial Lives Survey)

  1. 26,619

Total number of defined benefit (DB) to defined contribution (DC) transfers carried out in 2021/22 (the most recent year official data is available). (Source: FCA data)

  1. £1,174,970,963

Amount of money reclaimed by savers overtaxed on their pension withdrawals since April 2015. (Source: AJ Bell analysis of HMRC data)

  1. £3,216

Average reclaim value in the latest quarter (Q4 2023). (Source: AJ Bell analysis of HMRC data)

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