Pension Risks

Pension savers are withdrawing too much from their retirement pots – as figures show record numbers were dipping into their savings earlier this year. 

More than £35 billion has now been withdrawn from pots since new flexibilities were introduced in 2015, figures from HM Revenue and Customs (HMRC) show. In the first quarter of 2020, 348,000 people made flexible withdrawals from their pensions – a 23% increase on the same period a year earlier. It was the highest quarterly total since records started in 2015. The average amount withdrawn per person in the first quarter of 2020 was £7,100

Adverti

The Institute for Fiscal Studies (IFS) warned that the recent stock market falls could mean some people are permanently worse off in retirement than they had expected to be. The IFS said the recent fall in stock markets has reduced the wealth of those with DC pension pots invested in equities. It warned that if equity prices do not recover, or do not do so by the time people need to draw on the savings they have built up, then people with pensions invested in equities will either need to make do with less in their retirements, delay their retirement, or save more to fill the gap. It said people who are already retired and are drawing down pension savings, rather than taking an annuity, will also be hit – and people making flexible withdrawals from pensions invested in equities will either have to scale back what they take out or see their pension pot permanently reduced as a result of the crisis.

David Sturrock, a senior research economist at IFS, said: “The recent fall in the stock market is likely to hit the future retirement incomes of a lot of people. It will also hit many pensioners already relying on defined contribution pensions. Since 2015 they have not had to take an annuity and many are instead drawing down income from their retirement pots. They are likely to be permanently worse off in retirement than they expected even if the stock market returns to where it would have been, and much worse off if it does not.”

Tom Selby, a senior analyst at AJ Bell, said: “Independent research commissioned by AJ Bell suggests one in 10 over-55s have already accelerated plans to access their pension as a result of Covid-19. Anyone going down this route needs to think carefully about the sustainability of their retirement income strategy.

https://www.msn.com/en-gb/money/personalfinance/record-348000-people-withdrew-money-from-pensions-in-first-quarter-of-2020/ar-BB13qcBT?ocid=spartandhp