One if five pension savers who withdrew a cash lump sum from their pension did so as soon as they turned 55.
The figures from Legal & General, show that a significant proportion of people are accessing their pensions at the earliest opportunity, with the vast majority failing to seek advice on the potential financial consequences of this action.
More worrying almost half (46 per cent) of those accessing this money at the earliest opportunity said the took these funds “because they could”, not because they had an immediate financial need for this money.
Overall two-thirds of those taking these lump sums stay within the tax-free allowance but almost 10 per cent take their entire pot.
L&G’s data shows that this dash-for-cash could have longer term financial consequence. As well as affecting longer term financial security in retirement, taking a large lump sum from a pension can leave savers exposed to unexpected tax bills, and may affect their entitlement to means-tested benefits.
The research, which surveyed individuals over 50 to understand their retirement decisions and plans, shows that 32 per cent of people who accessed their pension did so to cover essential expenses, but a larger proportion (46 per cent) said they take the lump sum “because they could”. If given the choice again, one in five (18 per cent) of those surveyed said would have withdrawn less or no money as a lump sum.
In response to these concerns, L&G is partnering with Turn2us, a national charity offering practical information and support to people facing financial insecurity.
Through this partnership, L&G is signposting members to the Turn2us Benefits Calculator, a tool designed to help them check whether they are entitled to benefits and understand how changes to their circumstances may impact their benefit entitlement.
Legal & General head of defined contribution Rita Butler-Jones says: “These findings are a stark reminder of the significant advice gap that many of our clients’ members face when it comes to making decisions about their approach to retirement.
“A decade on from pension freedoms, it’s clear there’s much more to be done to educate savers about the different options available to them and how to balance their short and long-term financial needs.”
