Pension withdrawals hit a new record last year

pensions pots

UFPLS or lump sum withdrawals accessed for the first time increased by 14.6% to 41,571 while the total number of pension plans accessed for the first time rose by 4.8% to over 739,500

Cash being taken out of pension schemes hit a new record last year, as per new data from the FCA.

UFPLS or lump sum withdrawals accessed for the first time increased by 14.6% to 41,571 while the total number of pension plans accessed for the first time rose by 4.8% to over 739,500.

Paul Leandro, a partner at consultancy Barnett Waddingham, said: The FCA should not be surprised by the rising levels of cash withdrawals from pension pots, but they should be concerned.

Pension freedoms opened up Pandora’s Box – the temptation to draw cash rather than secure retirement income is great, particularly in light of the cost-of-living crisis, he added.

Leandro said: Some withdrawals may be sensible and financially sound, where the individual has suitable resources – but most are not.

Sales of annuities also decreased though the amount of money withdrawn from pension pots declined 5% to £43.2 billion in 2023 from a year earlier.

There was also another drop in the number of transfers from final salary (DB) schemes to DC schemes.

Analysis by US bank Goldman Sachs yesterday suggested that maintaining payments to pensioners in defined benefit (DB) schemes was a reason why London’s stock market was struggling.

According to the Wall Street giant, final salary schemes are selling £2.5 billion of equities a quarter compared to direct contribution (DC) schemes, which are buying £3 billion every three months.

That net positive of £500 million is not enough to support investment in the UK, particularly as even that money is going overseas notably toward US tech stocks.

Goldman Sachs estimates only a quarter of that money is going back into UK stocks, which added that in the 1990s, defined benefit schemes owned half of all UK shares compared to only 3% now.

Bonds, property and other perceived lower-risked assets have pushed equities out, the bank said.

DC schemes, which are rising in number, typically put a greater share of their investments in equities compared to DB schemes, which are dropping.

Sharon Bell, at Goldman Sachs, said while DC schemes are much bigger purchasers of equities became preeminent it would not alter the trend significantly.

She added: Incentives to capture these assets for UK investment along with a compelling equity-market growth story would be required to change this.

Bell added: Of course, this is somewhat circular; there is a need for domestic investors/ownership to deepen the capital market and encourage new firms to list.

New rules to encourage firms to list in London besides incentives for retail investors like an additional £5,000 ISA allowance have been introduced by the government to try to stimulate interest in the UK but the impact of this will take time to evaluate, according to observers.

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