Retirees withdrawing cash appeared to be acting with caution due to market volatility and were found to be using savings accounts as a “haven”, according to the latest statistics.
HMRC revealed that both the volume and value of flexible payments from pensions has hit a new high.
Between April and June this year, £2.75bn was withdrawn from pensions flexibly, with 760,000 payments made.
Over the same quarter, statistics from the Bank of England noted £7.5bn was deposited into accounts that are accessible without penalty, which includes easy access accounts. According to the latest research by Moneyfacts.co.uk, savers who have waited until now to open an account may have missed the boat on the most lucrative easy access rates, as they are now on the decline.
Moneyfacts says retirees who want frequent access to use their savings pot as a source of income will “need to be mindful that the best easy access deals can apply withdrawal restrictions or require savers to open the account online”.
Savers will also find that the market average rate of 0.64% is less than the Bank of England base rate, so there are still many accounts to avoid due to poor returns.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Retirees may be withdrawing cash from their pensions for various reasons, either to plug a debt gap, boost disposable income or even to reinvest.
“There are signs that the cash could be going into easy access accounts, away from stock market volatility and within easy reach. In recent months, several providers have cut their easy access rates, plus some of the top deals include withdrawal restrictions.
“The downside to choosing an easy access account is the return, which is variable and may well drop should we see a base rate cut before the year is out.
“As the average easy access rate stands at just 0.64%, it’s clear to see that there are much worse rates out there for savers than can be found in the top rate tables.
“Indeed, the Flexible Saver from HSBC pays a disappointing 0.15% – 10 times less than the top rate in the market today on offer from Virgin Money, which pays a rate of 1.50% on its Double Take E-Saver.
“It is slightly worrying to find such a large rise to both the volume and value of pension cash withdrawals, hitting a new record since pension freedoms were introduced. If retirees take too much cash out of their pensions from the age of 55, they may end up with little provision for the future, which they are unlikely to be able to recoup.
“Seeking independent financial advice, both when withdrawing cash and choosing a product in which to invest, is essential during a period of economic uncertainty.
“Taking out an easy access account may be an easy choice, but it doesn’t necessarily mean it’s the right one.”