£102.3 billion withdrawn flexibly from pension pots since 2015

Seven in ten people who withdrew funds from their pensions over the last decade were under 65, according to recent findings from the Department for Work and Pensions (DWP). The data highlights concerns about accessing retirement pots before reaching the State Pension age.

Almost 43% of all flexible pension withdrawals were made by people under 60, according to the DWP. An additional 28% of withdrawals were carried out by individuals aged between 60 and 64.

Scale of withdrawals raises questions
Since the pension freedom rules came into effect in 2015, the findings show a total of £102.3 billion has been withdrawn flexibly from pension pots. Of this, £36 billion (35%) was taken by those under 60, while another £29 billion (28%) was accessed by those aged 60 to 64.
The average amount withdrawn by individuals under 60 was £27,600, rising to £34,500 for those aged between 60 and 64. Importantly, these figures exclude tax-free lump sum withdrawals, which could add billions more.

Changing the State Pension age adds complexity
Currently, the UK’s State Pension age is 66 for both men and women, but it is gradually increasing. From 2026 to 2028, it will rise to 67, followed by a further increase to 68 between 2044 and 2046. This gradual rise reflects the government’s response to increasing life expectancy and financial pressures.

Simultaneously, the official minimum pension age, which is the earliest age people can access their pension, will rise from 55 to 57 in April 2028. This adjustment addresses growing concerns about early pension access and its potential long-term effects.

Pressures driving early withdrawals
Changes to Inheritance Tax (IHT) rules have also affected early pension withdrawals. From April 2027, defined contribution pension pots will be counted in IHT calculations. This upcoming change has led some savers to prioritise spending their pension funds rather than leaving an inheritance.

However, withdrawing pension funds early carries significant consequences. Savers must carefully consider how this might impact their future financial security and the sustainability of their retirement income.

Seeking the right professional advice
Navigating decisions about when to access pension savings can be complex, as it involves weighing various financial, personal and long-term factors. Seeking professional advice is essential, as it provides a clearer understanding of the available options and helps individuals make informed decisions that align with their unique goals and circumstances.

For those considering withdrawing
money from their pension before reaching retirement age, it’s crucial to understand the full consequences. Accessing pension
savings early can result in significant outcomes, such as potential tax charges, a reduced retirement income and an impact on long-term financial security.

This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. The value of your investments can go down as well as up, and you may get back less than you invested.

A pension is a long-term investment not normally accessible until age 55 (57 from april 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.