More than a million savers have embraced their new pension freedoms, accessing over £23 billion-worth of savings, figures from HM Revenue and Customs show.
Launched in April 2015, the reforms mean people are no longer required to use their pension pots to buy an annuity as an income when they retire.
Instead, over-55s have more flexibility over how they access their pots, being able to withdraw some or all of the money, subject to tax.
Before the freedoms were introduced, most savers who did not purchase an annuity faced a 55% tax charge on lump sum withdrawals, the Treasury said.
Now, savers can choose from a range of options, including income drawdown products, or they can take the whole amount out as a lump sum, paying no tax on the first 25%.
John Glen, Economic Secretary to the Treasury, said: “Pensioners should be able to control what they do with their own hard-earned pension savings, and that’s exactly what the pension freedoms reforms did.
“Over £23 billion of pension savings have been accessed by over a million savers since we introduced the reforms, and with free impartial advice available to everyone, pensioners across the country are now able to get the most out of their pension pot.”
Pension Wise is available to help those approaching retirement understand their options.
As well as this guidance service, people may also want to pay for financial advice.
Steven Cameron, pensions director at Aegon, said: “The freedoms have changed the way people think about retirement and are enabling the rise of a more flexible transition into retirement whereby people start accessing some retirement savings to support a reduced working pattern.”
Helen Morrissey, a pension specialist at Royal London, said: “Before making the decision to take pensions flexibly whether through drawdown or in a lump sum, care must be taken to ensure the level of income is sustainable and that people do not run out of money too early.”
Alistair McQueen, head of savings and retirement at Aviva said: “The pension freedoms show no sign of losing their popularity.
“More than one million savers have embraced their new freedoms since 2015.”
He said that despite fears that there may be a “dash for cash” when the freedoms were introduced, which could lead to some people running out of savings, withdrawal payments have consistently been averaging less than £4,000.
Mr McQueen continued: “These freedoms are attractive to younger savers too, with Aviva research finding that one third (33%) of under-35s believe this flexible access encourages them to put more money towards their pension.”
Here are Aviva’s tips to make the most of the pension freedoms:
1. Take advantage of the free Pension Wise government service, to understand your options.
2. Get a free state pension forecast to ensure you understand your entitlements – www.gov.uk/check-state-pension.
3. Take your time. You may have spent 40 years saving for your retirement – so take more than 40 minutes considering your options.
4. Consider your life expectancy. People often underestimate how many years we may live. The Office for National Statistics has a life expectancy calculator – www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/whatismylifeexpectancyandhowmightitchange/2017-12-01.
5. Approach final salary pensions with caution. If you have a final salary pension you will need to transfer it elsewhere to access the freedoms. This is a significant decision as you could lose significant benefits. Such a decision should be approached with caution, and normally with the guidance of a qualified financial adviser.