More than three-quarters or 78 per cent of retirees have already dipped into their pension funds by the time they retire with only 20 per cent waiting till their SRA to receive their pension, according to Scottish Widows.
According to Scottish Widows’ workplace pension scheme customers’ behaviour data from 2019 to 2023, which included 232,654 retirement claim transactions, out of the 78 per cent who claimed early, 52 per cent of them withdrew money five years before their Selected Retirement Age (SRA), while 21 per cent begin withdrawing funds nine to ten years before retirement.
Customers withdraw an average of £47,000 by the age of 65 but Scottish Widows’ financial modelling shows that if this sum is invested for a longer period of time, it can grow significantly.
According to Scottish Widows, investing between the ages of 55 and 60 would result in an average increase of £13,925. Extending it to age 65 would increase it by more than 50 per cent to £24,661, rising to £38,000 by age 70. Assuming a 25 per cent tax-free cash claim at 55, leaving £32,250 invested would result in an additional £10,441 after five years and £18,496 after ten years.
Scottish Widows workplace pensions director Graeme Bold says: “Our data shows that the vast majority of people withdraw money from their workplace pension before reaching retirement age. Whilst early withdrawals are often an unavoidable necessity, draining a pension pot too soon can carry risks which both providers and retirees should be taking steps to guard against where possible.
“As an industry, it’s crucial that we better understand pension holders’ behaviour, so that we can help them save enough for a comfortable retirement. More needs to be done to encourage people to keep their pensions invested for as long as possible. It’s up to pension providers to have the support in place for people through a lifetime of investment – before, during and after they reach retirement age.
“The pensions landscape is ever-changing – people are living longer which means pensions must cover longer retirements, and more people are choosing to phase into retirement with part-time work. Therefore, it’s essential that pensions are flexible enough to be fit for purpose in today’s world.”
