People are being warned to make sure they have all the facts or risk losing thousands of pounds when they retire. Experts say research has shown that one in three withdraw money from their pension funds before leaving work.
However, most of them do so without any financial advice, which puts them at risk of running out of money when they finally retire. Many of them say they have been forced to do so to cover rising costs, while others say they have used it to close the gap before the state pension kicks in.
Retirement specialists Just Group, which carried out the study, said 28% of people aged 55 and over had withdrawn money from their funds before retiring. One in three of them said it was to close the gap before reaching the state pension age, which is currently 66 but will rise to 67.
Under current rules, anyone over 55 can access their pension savings. But the longer you leave it intact, the more you will have when you retire.
Just Group says that if you withdraw £1,000 a year from your pensions between the ages of 55 and 66, you will have lost £11,000 from your pot – the impact is greater than that. Because assuming you will have interest and returns on your pension investments of around 5%, that means you will actually have lost almost £15,000.
Increasing this to £2,000 a year will mean you will have £29,834 less in your pot, after interest, than if you had left it. Stephen Lowe, group communications director at Just Group, said: “Our research shows that around a third of people aged 55 and over received money from their pension before leaving work, some because they wanted to and some because they needed it.
“It appears that accessing pensions before retiring from full-time work is helping a significant number of people cope with rising daily living costs and sudden or unexpected events such as redundancy or ill health. Around 45 % of those withdrawing cash from their pensions before leaving Labor said it was simply to take tax-free cash, but a significant minority of around a third do so to supplement their income.
“Whether taking pension money before retirement is a good or bad decision depends on people’s individual circumstances, but it is important to remember that pension money taken and spent before retirement will not be available to provide further income. forward in life.”
He encouraged those considering using pre-retirement pension cash to get through a difficult situation, such as redundancy or illness, to take a moment and consider whether it really is the best – or only – option. A good starting point is to first check if there are state benefits available to provide additional income.
“If people decide to make some lump-sum withdrawals from their pension, then they should find a way to do it in the most tax-efficient way. When times are tough, the pension pot can seem like an easy solution to a problem. immediate problem, but it is important that this is not the default solution.
“People may have other options and it is important that they are fully aware of all the options available to them and understand how decisions made now will likely affect their lives 10, 20 or 30 years from now. We urge all those “Those considering their pension options should take advantage of the government’s free, independent and impartial advice service, Pension Wise, which can provide a useful overview of the options available before and during retirement.”
According to Pensionworks, to enjoy a comfortable retirement, people will need around two-thirds of their pre-retirement income to be financially independent.
