United Kingdom

Growing numbers of over-55s are raiding their pension pots for short-term cash boost

Over-55s are increasingly dipping into their pension pots for a quick cash boost during the pandemic, HMRC figures reveal.

In July, August and September 347,000 people withdrew a total £2.3billion from their pensions using flexible payments subject to tax rules.

It marked a 6 per cent increase with the same period last year, when 327,000 raided their pots.

And bucking the seasonal trend which usually sees withdrawals peak in the second quarter, it was a slight 2 per cent increase from the period from April to June.

The report said: 'This change in behaviour may be attributable to the impact of the Covid-19 pandemic.' 

In July, August and September 347,000 people withdrew a total £2.3billion from their pensions using flexible payments subject to tax rules

Lockdown saw millions of workers furloughed on 80 per cent of their salaries, meaning many households had to tighten their belts.  

Many have lost work after initially being furloughed, although young people bore the brunt of lay-offs.

The average amount withdrawn per person in July-September was £6,700, falling by 7 per cent from £7,200 during the same months in 2019.

The total value of flexible withdrawals from pensions since pension flexibility changes in 2015 has exceeded £37billion.

Steven Cameron, pensions director at Aegon, said the downward trend in the average amounts being withdrawn 'is even more welcome than usual when stock markets have been particularly volatile'.

Over-55s are increasingly dipping into their pension pots for a quick cash boost during the pandemic, HMRC figures reveal (file photo)

He continued: 'There have been concerns that over-55s facing financial difficulties during Covid-19 would look to their pensions to provide a short-term boost and deplete their pension pot when fund values remain depressed. 

'This will remain concerning as we move through a second wave, with employment prospects particularly concerning.

'Alongside Covid-19 there are other headwinds in the path of a stock market recovery, with ongoing uncertainty over Brexit negotiations.

'Those concerned over withdrawing from their pension in a volatile market should seek professional financial advice. 

'Pensions are designed to provide an income throughout retirement and reducing the amount of income withdrawn during a period of downturn could be important for the longevity of the pension pot.'

Pension freedom tax rules allows over-55s of defined contribution pension schemes to access their pension savings early.

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