Almost a quarter of a million payments worth £1.8 billion were made to consumers from pension pots in April and May following the introduction of the pension freedoms, according to research from the Association of British Insurers (ABI).
The data reveals that £1.3 billion was put in to buying nearly 22,000 regular income products within the same two month period. Half (50%) of this money went into income drawdown products rather than annuities.
The research also found:
- Savers took out over £1 billion in 65,000 cash withdrawals from their pension pots.
- The average pot taken was £15,500. These cash lump sum payments take advantage of new forms of withdrawal known as uncrystallised funds pension lump sum (UFPLS).
- Pension holders took out £800 million worth of payments from income drawdown policies in 170,000 withdrawals.
- Savers put in £630 million to buy 11,300 annuities and a further £720m to buy 10,300 income drawdown policies. This compares to almost £1.2 billion a month in sales of annuities at the peak in 2012, when only £0.1 billion a month was put into income drawdown products.
- The average annuity was purchased with £55,750 and the average fund put into drawdown was £69,900.
- Nearly half of savers (45% of sales) chose a different provider when buying an annuity and more than half (52% of sales) switched provider when buying an income drawdown product.
Dr Yvonne Braun (pictured), director for long term savings policy at the ABI, said: “This is an important reminder that tens of thousands of people are successfully accessing the pension freedoms as intended and on the whole the industry has risen to the challenge of giving customers what they want.
“The data shows people with smaller pots tend to be cashing them out while those with larger pots tend to be buying a regular income product. It also highlights an increase in the number of people putting money into income drawdown products that can take advantage of the new freedoms.
“We are just three months into the biggest overhaul in pensions for a generation, which was introduced in only one year, so some issues remain that need to be worked through, in particular around financial advice.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, added: ”All this data shows that the retirement income market has changed fundamentally. The key message for investors is to engage with their retirement savings in good time and to make informed choices about how best to draw on them.”