Cashing In Pensions Leaves Savers Short In Retirement

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Thousands of retirement savers are cashing in their small pots too early and risk a bleak financial future.

Many risk falling below the poverty line because they spend their savings too soon or put the money in a bank rather than leaving the cash invested, says a new report from think-tank the Joseph Rowntree Foundation.

The JRF calculates that the minimum income a single pensioner needs for a basic lifestyle is £195.90 a week (£10,186 a year), but the state pension and other benefits only provides 93% of that amount – leaving a gap of £13.71 a week to be met from other income.

For retired couples, the minimum income figure is £301.92 a week (£15,699 a year), covering 90% of the amount and leaving a £29.29 hole to be filled.

Plugging the income gap

Stephen Lowe, group communications director at Just Group, which analysed the figures, said: “State pension and other benefits don’t quite provide enough income for pensioners to achieve these minimum income levels, so retirees will need to top-up using their own savings or pensions.

“The good news is that the sums needed are relatively modest, the bad news is that the financial regulator has described cashing in funds early ‘the new norm’ with tens of thousands taking small funds up front each month.”

Lowe calculates a 65-year-old would need a pension of around £14,000 to generate a guaranteed income of £13.71 a week from an annuity, while a couple would need to invest a fund of around £30,000 to provide £29.29 a week.

Where the money goes

Figures from the Financial Conduct Authority show money is taken from around 600,000 pensions a year.

Of those taking pension money for the first time, 70% are aged under than 64 years old with two-thirds of funds accessed valued at less than £30,000.

The FCA added 85% of funds worth less than £10,000 and 61% worth between £10,000 to £30,000 are cash withdrawals of the entire fund

But 30% will rely on the state pension and other benefits for retirement, according to the FCA.

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