New figures have sparked concern about the number of people withdrawing pension funds early as one expert details how to do it safely
New Department for Work and Pensions data has raised alarm bells over how Brits are tapping into their pension pots at younger ages. The statistics showed that seven in 10 people who took flexible payments from their pension since 2015 were younger than 65 years old.
Lisa Picardo, Chief Business Officer UK at PensionBee, warned that early pension access could easily result in people “draining their pension pot before they reach retirement”, especially during the current cost of living squeeze.
However, she said it is possible to begin drawing your pension in your early 60s or even late 50s without jeopardising your retirement security if you stick to certain fundamental guidelines.
The 2015 pension freedom reforms permitted individuals to tap into their pension from age 55. This currently sits 11 years ahead of state pension eligibility. And this gap is set to widen as the state pension age faces ongoing review and rises in step with life expectancy data.
For those drawing their pensions at the first opportunity, this could risks their money falling short even before state pension payments kick in. To avoid this pitfall, Lisa said: “The key is planning ahead and withdrawing sustainably.
“Work out how much you might need each year from your personal pension in addition to what’s available from your State Pension, factor in inflation and tax, and consider leaving as much as possible invested to keep growing. Even small adjustments to how much and how often you withdraw can make a big difference to your future income in later life.
“Most importantly, remember your pension needs to last a lifetime. It needs to be there to support you for the whole of your retirement, not just the early years, so pacing yourself can help you enjoy the journey without running out of fuel.”
Looking at the new DWP statistics, Lisa expressed some optimism for what lies ahead. She pointed out how the data appears to demonstrate “a maturing” in how those over 55 have used their retirement funds since 2015.
The pensions specialist said: “Rather than people raiding their pots the moment they turn 55, we’re seeing more sensible behaviour, and people are waiting until they’re genuinely approaching, or are in retirement, before making significant withdrawals. This may be reflective of longer working lives, delayed retirements and increased longevity.
“Back in 2016, people in their late fifties were the biggest users, taking 42% of all taxable withdrawals, followed by 28% in their early 60s, and 30% in the over 65 age category. Now the 55-59 group has dropped to just 26%, with a stable 28% in their early 60s, and 46% of taxable withdrawals from the over 65s.”