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Over 55s cash in £2.7 billion of UK pension funds

People over the age of 55 have cashed in £2.7 billion of their pensions since changes to UK pension rules gave them full access to their funds.29 Oct 2015

The payments have been made to 146,000 individuals since April, HMRC said.

The new pension regime, which came into force in April, allows members of defined contribution pension schemes to take more than 25% of their savings as a cash lump sum at age 55, without incurring heavy tax penalties or necessarily having to purchase an annuity from an insurer.

According to HMRC, £1.5bn of pension payments were made in the second quarter of 2015, and £1.2bn in the third.

HMRC did not say how much tax had been paid on the cashed-in funds since April. Any withdrawal above 25% of a saver's fund will be subject to their marginal rate of income tax.

Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com said: "The Treasury will be pleased with the high take-up of the new freedoms and choice measures introduced for pension savers. Whether this indicates a success story for pension savers is another matter."

"We can only guess whether all those who cashed out their pensions acted wisely. Some may unwittingly have taken themselves into a higher income tax bracket – which could have been avoided if they had spread out their payments. Others may have blown all their pension savings, whether on a Lamborghini or a dodgy investment scam. Guidance and advice are there to help out, but the Work and Pensions Committee has concluded that take up of guidance offered by Pension Wise is lower than anticipated, and many savers believe they cannot afford to take financial advice. We need more information to work out whether pension savers are doing the right thing," Tyler said.

The Work and Pensions Committee said this month that UK pension providers and regulators must do more to encourage savers to access financial guidance or advice at the point of retirement, or risk "another financial mis-selling scandal".

The committee said that the success of the new pension rules depended on "good quality, co-ordinated and accessible guidance and advice". Reports of "lower than anticipated" take-up of Pension Wise, the free-to-access government-backed guidance service, were a cause for concern, it said.