Private pension savers withdrew £3.57bn in the second quarter of this year, a 23% increase year-on-year.
The money was withdrawn by 508,000 people, according to statistics released today by HMRC.
The average withdrawal per person was £7,000.
In the second quarter of 2021 £2.9bn was withdrawn by 414,000 people.
The latest figures also reveal that substantial amounts of tax continued to be raised due to breaches of the Lifetime Allowance (LTA).
In 2020/21 8,610 pension savers breached the LTA (8,650 the previous) year and paid penalties of £382m (£344m the previous year). On average the penalties cost each individual £44,367 in 2020/21 based on total raised by the breaches.
The Lifetime Allowance is currently frozen at £1.07m until the 2025/26 tax year as part of a five year freeze on thresholds and personal allowances.
In the 2021/22 tax year, £10.63bn was withdrawn by private pension savers. This compares with £9.58bn in 2020/21.
The figures from HMRC show that so far £59.21bn has been withdrawn flexibly from pensions since the introduction of Pension Freedoms in April 2015.
Andrew Tully, technical director at Canada Life, said the latest figures from HMRC show that many pension savers are having to dip into their retirement funds in order to make ends meet during the cost-of-living crisis.
He said: “The withdrawals for the most recent quarter, April to Jun 2022 reflect the cost-of-living crisis when many people are starting to dip into their pensions to make ends meet. It’s completely understandable that people are prioritising heating and eating above their savings at this difficult time.
“However it is important the industry – Government, providers and advisers – help make sure people make the best decisions – dripping funds out gradually rather than all at once can save tax. And if taxable income is taken then the money purchase annual allowance limits future savings considerably to £4,000 a year – so taking some tax-free cash only may be the best option for some, especially if you plan to continue working and contributing.
“There also needs to be an awareness that if many people withdraw much of their pension now then it won’t be able to provide retirement income for all of their retirement, so there may be more pressure on state pensions and other benefits in later life. Using the home as an asset may increase in later life as a result.”
Stephanie McClarence, Chartered Financial Planner at national IFA Continuum, said the rise in the tax take from the lifetime allowance demonstrates the value of financial advice.
She said: “Most people I talk to about their pensions are focused on whether or not they’re putting enough into their plans, and rightly so, but few are aware that having ‘too much’ could leave them with another tax bill.
“The lifetime allowance tax charge can be a difficult one to manage because even if you stop adding money into your pension once you’re nearing your limit, a few good years of investment performance could push you past your allowance.
“In the past the lifetime allowance has been higher than it is now, each time the government has reduced this threshold they’ve offered the opportunity for individuals to protect their pension against the reduction, if certain criteria are met. There are a couple of these protections still available to individuals, however, the legislation around these schemes is complicated, using the schemes is not for the faint hearted, and getting expert advice to take advantage of these schemes is essential.”
Jon Greer, head of retirement policy at Quilter, cautioned that it was important to tread carefully when considering accessing a pension and called for the Government to relax the Money Purchase Annual Allowance.
He said: "Although over the last few years the number of flexible withdrawals from pensions has risen this represents a significant spike. During the pandemic we didn’t see such big increases as the government support schemes did their job and prevented a mass exodus of savings. However, we are now facing a very different beast as energy bills and food costs are set to soar along with mortgage payments and pensioners may well feel that they need more each month to get by."