Since pension freedom rules were introduced, 2.4m people have taken a taxable pension payment from their retirement savings before the age of 65, according to HMRC data.
These figures do not include those who just took their tax-free lump sum from their pension before the age of 65. Analysis of this data by tech firm Lumera, shows that this group of ’early accessors’ account for seven in 10 of the 3.42 million pension savers who have taken taxable payments from their pension pots.
The total value of these taxable pension payments was £124.7bn, with more than 60p in every pound (61 per cent), totalling £75.5bn, received by individuals who were under 65.
Analysis by Lumera says that these figures highlight the scale of early pension access since pension freedom rules were introduced in 2015, and prompt questions about the sustainability of drawdown levels, and longer-term implications for retirement income security.
The data also shows a marked gender divide with these flexible pension withdrawals. Since 2015, male savers have withdrawn £94.19bn, three times that of female savers (£30.28bn).
Male savers also accounted for 64 per cent of the total 3.42 million individuals taking payments, and 76 per cent of the total value withdrawn.
Lumera chief commercial officer Peter Roos says: “Pension freedoms have given millions of people much greater flexibility over how and when they use their retirement savings but accessing a pension early can have important and sometimes overlooked consequences.
“The concern is not necessarily that people are accessing their pensions before 65 – for many, doing so will be entirely appropriate – but whether they fully understand the tax implications and the potential impact on their longer-term retirement income.
“Taking money out earlier also means losing the potential investment growth on those savings and leaving a smaller pot to support what could be several decades in retirement.”
He adds that as more people reach retirement with only DC savings, initiatives such as guided retirement and targeted support could play an important role in helping savers achieve better outcomes.
Roos adds: “Both of these initiatives will require providers to be able to leverage data at scale, whether it is to assign members to default pathways, or to provide more targeted guidance at the point they access their pension.
“This can also help savers avoid unintended tax consequences and make choices that are better aligned with their long-term retirement needs.”