More savers choosing to access pension at 55

More savers choosing to access pension at 55

The number of savers accessing their pensions as soon as they hit retirement age has increased by 10 per cent, according to data from the Financial Conduct Authority.

A freedom of information request submitted to the FCA by Salisbury House Wealth revealed the number of 55 year-olds accessing their pension increased to 29,700 in 2018-19, from 26,900 in 2017-18. 

It also showed a record 7,683 55 year-olds accessed their pension in the second quarter of 2019.

Savers have been able to access their pension pots at age 55 since the introduction of pension freedoms in 2015. 

Since the introduction of these rules, those aged 55 have withdrawn £7.5bn from their pensions.

The FOI also revealed a growing number of 55 year-olds are withdrawing from their pensions to help their children get onto the property ladder. 

The amount lent by the ‘Bank of Mum and Dad’ for house purchases also increased 10 per cent last year to £6.3bn, up from £5.7bn in 2018.

Tim Holmes, managing director of Salisbury House Wealth, said although it had become increasingly popular to access pensions early, doing so leaves people exposed to not having enough money left when they reach retirement.

Rising life expectancy also means pension savings now have to last much longer than previously.

The number of people in the UK aged 80 and over is expected to grow 59 per cent to 5.2m in 2039, up from 3.3m in 2019.

Mr Holmes said: “More and more individuals are cashing in their pensions early, but at huge risk.

“As life expectancies grow, so does the length of retirement. This means that a failure to make informed spending decisions when accessing pensions early means individuals put themselves at a much greater risk of financial hardship further down the line.

“Worst case scenario is that individuals have to go back to work in retirement in order to make ends meet – and no one wants that.

“However, the ability to access pensions early does present an opportunity to take greater control over how funds are used. For example, to provide assistance to children to get onto the property ladder or to invest in higher-risk higher-return asset classes."

He also warned that savers may not be fully aware of the tax implications of withdrawing from their pensions early, which can result in significant tax charges. 

This is because when withdrawing money out of pensions, the saver reduces the amount they can contribute again and still benefit from tax relief.

Mr Holmes said: “There are complex tax rules surrounding pension withdrawals which are often not made clear. It is always best to speak to a specialist before going ahead.”

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