Thousands of over-55s lose out from pension freedoms

Thousands of over-55s lose out from pension freedoms

Hundreds of thousands of vulnerable over-55s could be left worse off this year if they take advantage of pension freedoms to access cash lump sums, Just has warned.

The firm, which rebranded this week following the merger of Just Retirement and Partnership, said 2017 would see the highest ever number of people reaching 55, the age at which pension freedoms kick in.

Forty-two per cent of these would be forced to retire earlier than planned, most commonly because of poor health or redundancy.

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This fact, compounded by the rising state pension age, increased the likelihood that over-55s would access their pension pot at a relatively young age, the firm warned.

The research found the most common factors forcing early retirement were illness, redundancy, being physically unable to keep on doing the job, an employer enforcing a change of role, and needing to provide full-time care to a family member.

More than half of those forced to retire early said it had an impact on their retirement income.

Thirteen per cent said it cut their income by more than 20p for every pound they were expecting, while 8 per cent said they lost between 10p and 20p and 7 per cent up to 10p.

Others reported having to rely on a partner’s income, increasing their investment risk, or tapping into non-pension assets.

Stephen Lowe, group communications director at Just, said nearly 900,000 were set to have their 55th birthday in 2017, compared with fewer than 600,000 in 1990.

He warned many may interpret the scrapping of compulsory annuitisation as a government endorsement that taking a cash lump sum is a good idea.

"We know from our own research that around 42 per cent of those now aged over 65 were forced to retire or go part-time earlier than they had expected and more than half said this impacted on their retirement income," Mr Lowe said.

“The number was higher among the more recently retired and the financial consequences are likely to be magnified as people now have the option of getting at their cash earlier, but may have to wait longer to claim the state pension."

He urged early retirees tempted to take out lump sums to ensure they did not "impoverish [their] future self". 

Claire Walsh, a chartered financial planner with Aspect8, said the removal of the default retirement age in 2010 meant increasing numbers of people in their 60s were receiving redundancy packages.

While this may not be ideal for those not ready to retire, Ms Walsh said for wealthier people, such as her clients, it was generally welcomed.

She also added the increased flexibility of pension freedoms was a positive thing for people who needed to retire early to provide full-time care.

However, she said retirees today faced an increasingly complicated set of choices.

Ms Walsh said: "Going back 10 years ago, you retired at 65 and got your pension as an income stream, so there was a lot less to worry about. But now the situation is a lot more confusing."