Zarah ChoudharyResearch from Legal & General (L&G) has revealed that one in five (21%) people who withdrew a cash lump sum from their pension pot did so as soon as they turned 55, with 46% saying they did so ‘because they could’.
The research, which surveyed individuals over 50 to understand their retirement decisions and plans, showed that a lower number (32%) of people who accessed their pension did so to cover essential expenses.
More than a quarter (27%) of UK adults aged 50 or over were found to have made decisions about their pensions without seeking advice or guidance leaving themselves exposed to unexpected tax bills or losing entitlement to means-tested benefits.
It also reveals that 24% of people who have withdrawn a cash lump sum did not realise that taking a lump sum could affect their eligibility for means-tested benefits, with 11% saying it had a direct impact on their entitlement.
Among those who did withdraw a lump sum, two-thirds (67%) took 25% or less to stay within the tax-free allowance, while 10% withdrew their entire pot.
If given the choice again, 18% would have withdrawn less or no money as a lump sum.
In response to these concerns, L&G is partnering with Turn2us, a national charity offering practical information and support to people facing financial insecurity.
Through this partnership, L&G is signposting customers to the Turn2us Benefits Calculator, a tool designed to help customers check whether they are entitled to benefits and understand how changes to their circumstances may impact their benefit entitlement.
Katharine Photiou, managing director workplace savings at L&G, said: “People cash out their pension for different reasons, whether it’s to cover essential expenses or simply because they can.
“But withdrawing without seeking advice or guidance can lead to unexpected consequences, like paying more tax or even losing access to benefits.
“For anyone considering taking a lump sum from their pension, there’s free support and guidance available, but as our research has shown, this is often underutilised.
“Our partnership with Turn2us will help customers get to grips with their entitlement to state benefits, which is especially important for those with modest retirement savings.
“By offering digital tools and resources, we hope to help people to make more informed decisions as they approach retirement.”
Donisha Thompson, head of information programmes at Turn2us, said: “Retirement should be an exciting chapter of life, but concerns about savings can make it stressful.
“The Turn2us Benefits Calculator can be used to check what support you may be entitled to and learn how to claim it.”
