A recent study conducted by financial services firm Just Group has unveiled that more than a quarter of individuals are accessing their pension funds before reaching retirement age. These individuals, known as “early dippers,” are experiencing financial difficulties that drive them to dip into their savings to cover living expenses. The survey revealed that a third of these individuals required the income to cover essential expenses, such as redundancy or the challenges of securing a new job in their 50s.
The decision to withdraw from pension pots has long-term consequences, as eight percent of those who accessed their pensions early expressed regret and acknowledged the impact on the size of their pension. It is crucial for individuals to be mindful of the implications associated with early withdrawal, given the adverse impact on the future size and growth of their pension fund, resulting in reduced monthly pension payments.
Importantly, it is worth noting that accessing private pensions before retirement age will soon become even more challenging, with the minimum age for withdrawal set to increase from 55 to 57 by April 2028. Consequently, individuals in their mid to late 40s and early 50s are advised to plan ahead if they intend to retire early or tap into their pension savings for significant expenses.
While some pension schemes may still permit individuals to access their funds at 55, it is crucial for individuals to review the specific details of their pension plans. Despite the potential tax-free nature of the first 25 percent of the withdrawal, caution should be exercised, and alternative solutions should be explored before making such a decision.
The survey also highlighted the lack of advice available to individuals considering early pension withdrawal. Alarmingly, 49 percent of people who accessed their pensions early did not receive any professional guidance or advice to inform their decision. Only 27 percent consulted a financial adviser, while 12 percent relied on friends and family for input.
Stephen Lowe, a director at Just Group, emphasized the importance of considering individual circumstances before making decisions regarding pension withdrawals. He cautioned against viewing the pension fund as a quick fix for immediate financial challenges and stressed the importance of exploring other options in challenging times.
In conclusion, the study’s findings serve as a timely warning, presenting a stark reality of the financial pressures faced by individuals as they approach retirement age. It is imperative for individuals to seek professional advice and carefully evaluate all available options before considering early withdrawal from their pension funds. By being cautious and well-informed, individuals can better safeguard their financial security in retirement.