Workers have been warned over taking money out of their pension while they are still paying in to it.
State pensioners warned over ‘epidemic’ sweeping UK that’ll cost them £54,000
State pensioners have been warned over an “epidemic” of a mistake that will cost them £54,000 in retirement savings. Workers have been warned over taking money out of their pension while they are still paying in to it.
This is a process often referred to as “flexible payments” and was introduced in 2015. From the age of 55, you can access your savings from your work or personal pension scheme.
But tapping into your pension pot too early could mean you run the risk of running out of money. Department for Work and Pensions (DWP) data shows, from April 2015-2024, almost 43 per cent of all flexible payments were made to those aged under 60.
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Of the £103billion taken as flexible payments since 2015, £36billion was paid to those aged below 60. Just Group said the findings raise questions about “whether people are tapping into pensions too early in retirement”.
Stephen Lowe, communications director said: “Perhaps if the FCA had called it an ‘epidemic’ it might be viewed in a different light and more steps taken to understand the consequences.
“Ultimately pensions are primarily to provide retirement income and that money won’t be available in old age if people are using it to subsidise their lifestyle long before retirement.”
An annuity provides you with a regular guaranteed income in retirement. You can buy an annuity with some or all of your pension pot. It pays income either for life or for an agreed number of years.
A £136,500 pension could by you a £10,000 a year income from an annuity based on current average annuity rates, which is 7.3%.
But a £99,632 pension would only be able to buy you an annuity that would give you £7,300 a year. Over 20 years, that would give you £146,000 – or £54,000 less.