The ‘vast majority’ of people are ‘dipping into pensions before retirement’

The vast majority of people who have a defined contribution (DC) pension are taking money out before they retire.

Scottish Widows said that around 78% are taking money out early and the average is £47,000.

Data has found that 52% of people withdrew money five years before their selected retirement age (SRA) and 21% are taking funds out some ten years before they are due to retire.

Scottish Widows said that those who have taken out £47,000 could have potentially earned around £13,900 on a DC pension, more by the time they reach 60-years of age.

This could have risen to around £24,600 had they left the money their for ten years at the age of 65, or if they waited until they turn 70 then could have earned more than £38,000 had the money stayed invested.

Graeme Bold, workplace pensions director at Scottish Widows, said: “Our data shows that the vast majority of people withdraw money from their workplace pension before reaching retirement age.

“Whilst early withdrawals are often an unavoidable necessity, draining a pension pot too soon can carry risks which both providers and retirees should be taking steps to guard against where possible.

“As an industry, it’s crucial that we better understand pension holders’ behaviour, so that we can help them save enough for a comfortable retirement.

“More needs to be done to encourage people to keep their pensions invested for as long as possible. It’s up to pension providers to have the support in place for people through a lifetime of investment – before, during and after they reach retirement age.

“The pensions landscape is ever-changing – people are living longer which means pensions must cover longer retirements, and more people are choosing to phase into retirement with part-time work. Therefore, it’s essential that pensions are flexible enough to be fit for purpose in today’s world.”