Greater than three-quarters of individuals with outlined contribution pension pots have already dipped into them by the point they retire, information has proven.
Scottish Widows stated that 78% of individuals took cash from their pots early, withdrawing £47,000 on common.
Of these taking cash out early, greater than half (52%) withdrew funds 5 years earlier than their chosen retirement age (SRA), with a fifth (21%) opting to start out taking out funds 9 to 10 years earlier than their retirement age.
Scottish Widows analysed office pension scheme clients’ behaviour throughout greater than 230,000 completely different retirement declare transactions between 2019 and 2023.
It additionally checked out how a lot the common £47,000 withdrawal might develop by if it remained invested for longer.
Scottish Widows estimated that if the cash remained invested from age 55 – the age at which individuals with a DC pension can begin to withdraw cash below the pension freedoms – for a further 5 years, they might doubtlessly have round £13,900 extra on common by the point they attain 60.
That determine might doubtlessly rise to round £24,600 if it had been to remain invested for 10 years to age 65 and to greater than £38,000 if somebody stayed invested to the age of 70, in line with the projections.
How a lot folks might find yourself with in actuality would depend upon howmarkets carry out.
Scottish Widows used financial situations for its modelling, taking into consideration elements corresponding to rates of interest, inflation and currencies.
Graeme Daring, office pensions director at Scottish Widows, stated: “Our information reveals that the overwhelming majority of individuals withdraw cash from their office pension earlier than reaching retirement age.
“While early withdrawals are sometimes an unavoidable necessity, draining a pension pot too quickly can carry dangers which each suppliers and retirees must be taking steps to protect towards the place potential.
“As an business, it’s essential that we higher perceive pension holders’ behaviour, in order that we may help them save sufficient for a snug retirement.
“Extra must be executed to encourage folks to maintain their pensions invested for so long as potential. It’s as much as pension suppliers to have the help in place for folks by a lifetime of funding – earlier than, throughout and after they attain retirement age.
“The pensions panorama is ever-changing – individuals are residing longer which implies pensions should cowl longer retirements, and extra individuals are selecting to part into retirement with part-time work. Due to this fact, it’s important that pensions are versatile sufficient to be match for objective in at the moment’s world.”
Earlier this week, Sir Steve Webb, a former pensions minister who’s now a associate at LCP (Lane Clark & Peacock), cautioned that some dwelling patrons may very well be playing with their retirement prospects by taking up ultra-long mortgages.
He obtained freedom of knowledge (FOI) information provided by the Financial institution of England, displaying that 42% of latest mortgages within the fourth quarter of 2023 – or 91,394 – had phrases going past the state pension age.