Figures released by HMRC show that the number of people taking money out of their pensions has hit a new high, which has led to concerns that there could be an influx of new money into the savings market that could lead to rates falling further.
Already, the savings market has seen rates fall in response to the Bank of England base rate cut and announcement of a new Funding for Lending Scheme. For example, as the table below shows, since January, the average easy access rate has fallen by 0.27%.
Savings market analysis
|May 2019||January 2020||Today|
|Average easy access rate||0.62%||0.59%||0.32%|
Adding into the already troubled savings market an influx of money released from pension funds could result in rates falling at an even quicker pace. According to the HMRC, between January and March this year, 348,000 people withdrew funds from their pensions, which was a 23% increase during the same period the previous year. Meanwhile, there was also a 19% rise year-on-year during this same period of flexible payments from pensions, with £2.46bn being withdrawn from pensions flexibly between January and March. During these three months, statistics from the Bank of England noted £7.8bn was deposited into accounts that are accessible without penalty, which includes easy access accounts.
“The rise in the number of individuals choosing to withdraw their pension cash hitting a new high is slightly concerning, especially as the value of withdrawals was the highest recorded for the first three months of 2020 in any year since pension freedoms began,” Rachel Springall, finance expert at Moneyfacts.co.uk, said. “Retirees may well be doing so to boost their disposable income in light of the Coronavirus pandemic, however, any immediate respite could have a devastating impact on their pension provisions for the future that they may be unable to recoup.
“One type of savings vehicle consumers appear to be using to hold their pensions cash are easy access accounts, perhaps due to their flexibility and to avoid stock market volatility, but a flood of pensions cash into this market can have consequences that may already be playing out. Indeed, savings providers who are inundated with cash may pull deals entirely, add opening restrictions or cut rates to deter investors. The easy access market is already suffering from rate cuts and withdrawals in light of the Coronavirus pandemic and the subsequent base rate cuts, so a flood of pensions cash could result in more reductions or withdrawals.
“If savers are planning to open an easy access account, then they would be wise to consider the more unfamiliar challenger banks and look away from the high street banks to find the best returns. Savers who keep their cash in a high street bank easy access account could be earning next to nothing, for example NatWest pays just 0.01%. In terms of the best deals, NS&I may be paying the top easy access rate today, but there is no guarantee this will stay in the pole position in the future.”
Of the top 10 easy access savings rates available today, none are from traditional banks or building societies. As well as this, the top easy access rate on offer today stands at 1.15%, which is 0.35% less than a year ago (when the top rate was 1.50%) and 0.26% less than at the beginning of the year, when savers could get a top rate of 1.41%. This means that savers should not only consider an unfamiliar name when looking to get the best return on their savings, but also act quickly as easy access savings rates could continue to fall further.
|May 2019||January 2020||Today|
|Virgin Money – Double Take E-Saver Issue 10 – 1.50%||Shawbrook Bank – Easy Access Issue 17 – 1.41%||National Savings & Investments – Income Bonds – 1.15%|
|Virgin Money – Man Utd Double Take E-Saver Issue 5 – 1.50%||Gatehouse Bank – Easy Access Account – 1.40%||Family Building Society - Market Tracker Saver (1) – 1.13%|
|Marcus by Goldman Sachs® – Online Savings Account – 1.49%||Chelsea Building Society – 1 Year Limited Access Saver – 1.40%||Family Building Society – Online Saver (2) – 1.06%|
|Tesco Bank – Internet Saver – 1.46%||Yorkshire Building Society – 1 Year Limited Access Saver – 1.40%||Marcus by Goldman Sachs® – Online Savings Account – 1.04%|
|Shawbrook Bank – Easy Access Issue 14 – 1.43%||Buckinghamshire BS – Single Access Saver – 1.35%||RCI Bank UK – Freedom Savings Account – 1.05%|
|Cynergy Bank – Online Easy Access Account Issue 22 – 1.43%||Ford Money – Flexible Saver – 1.35%||Virgin Money – Double Take E-Saver Issue 16 – 1.01%|
|Skipton BS – Online Bonus Saver Issue 5 – 1.42%||Marcus by Goldman Sachs® – Online Savings Account – 1.34%||Family Building Society – Branch Saver (3) – 1.01%|
|RCI Bank UK – Freedom Savings Account – 1.42%||SAGA – Saga Easy Access Savings Account – 1.34%||Virgin Money – Virgin Money Instant Savings – 1.00%|
|Kent Reliance – Easy Access Issue 32 – 1.40%||Britannia – Select Access Saver 11 – 1.30%||ICICI Bank UK – SuperSaver Savings Account – 1.00%|
|Britannia – Select Access Saver 10 1.40%||Post Office Money® – Online Saver Issue 43 – 1.30%||National Savings & Investments – Direct Saver – 1.00%|
Springall added: “The savings market is changing quickly, so if consumers are hoping to grab the best possible return on their cash, they will need to act fast. It is worth pointing out that easy access accounts pay a variable rate of interest and this can change at any moment. Consumers would be wise to seek independent financial advice before they withdraw their pension cash so that they can understand the impact it may have on their future provisions. Taking cash out of a pension and putting it in a savings account may be a quick fix, but it might not be the right choice.”
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