According to research from financial company Zurich, more than 300,000 people are now making regular withdrawals from a pension – even though they are still in gainful employment.
Half of over-55s using rules that allow them to draw money from their pensions have not yet given up work – with the result that they are shrinking the pots they will need to rely on in retirement.
The findings suggest that many people are at risk of burning through their pension cash before they fully retire and are heading for a lower standard of living in later life.
More than half of those dipping in early are full-time workers with many admitting they could live comfortably without taking this extra pension cash. Nearly a third of those in part-time work are also accessing pension cash when they don’t really need to.
Zurich’s Alistair Wilson says: ‘Savers taking pensions income they don’t yet need are in danger of leaving a black hole in their finances when they eventually retire.’
The company’s findings come in the wake of data from HM Revenue & Customs showing that 336,000 savers withdrew a record £2.75billion from their pension funds between March and June this year.
In the four years since rules were introduced allowing access to pension funds from age 55, more than £28billion has been taken out by nearly 2.2million people.
Experts say there are a number of factors behind this surge in early dippers. Jessica List, of pension provider Curtis Banks, says: ‘In many cases early access to cash is being motivated by a fear that the Government will change the pension rules – whether it is taking away the flexibility currently available to retirees, or removing generous benefits such as tax-free cash.
‘This is understandable given there are constant rumours emanating from Whitehall every year about further pension changes.’
Janette Weir, of research group Ignition House, believes some people are acting thoughtlessly. She says: ‘People know they can take 25 per cent of their pension tax free and so are withdrawing this amount. Many just don’t need the money. There is also an issue of not trusting pensions, so they take money out and stick it in a savings account that they do trust.’
Source: This is Money – Read More