Pension warning as increasing withdrawal ‘risk’ raises alarm bells

Pension warning as increasing withdrawal ‘risk’ raises alarm bells (Image: Getty) While pension contributions have reached record highs, there has been a significant increase in the amount being withdrawn by those old enough to access their pensions, new data shows. Private pension statistics published by HMRC this week indicate that pension withdrawals by over 55s reached £12.9billion in the fiscal year 2022 to 2023. This amount has risen from £11.2billion in 2021 to 2022 and £9.3billion in 2020 to 2021. Becky O’Connor, director of public affairs at PensionBee, said: ‘People are increasingly benefiting from pensions either by choice or because salary increases are resulting in a rise in contributions. ‘However, the apparent increase in the number and value of withdrawals is concerning – the risk is that people take more out to cover the rising cost of living but don’t leave enough in their pensions to get through their whole retirement.’ In the three months between January to June 2023, 1.1 million people withdrew £7.5billion from their pensions, an increase of 17 percent in the number of withdrawals since 2022 and a 67 percent increase since the same period in 2020. A staggering £12.9billion was withdrawn early from pensions by over 55s in the 2022 (Image: Getty) Alice Guy, head of pensions and savings at interactive investor said: ‘It’s extremely worrying that so many more people are withdrawing funds from their pensions and at higher rates. ‘Pension savings take years of dedication and hard work to build and it’s a huge concern that so many are having to dip into these savings, at potentially unsustainable rates. ‘The raising of the state pension age means people often have a gap between winding down in the workplace, perhaps going part-time, and receiving the state pension. We sadly see that many people in their mid-sixties are struggling to make ends meet before they receive the state pension at 67. ‘This means that many older workers face a huge dilemma, often needing to focus on immediate needs over long-term financial goals.’ Meanwhile, Ms O’Connor noted that the figures reflecting just a slight rise in the number of self-employed people opting to pay into a pension was ‘a little disappointing’. The number of self-employed people making individual contributions to a personal pension saw a marginal increase from 330,000 in 2020 to 2021 to 340,000 in 2021 to 2022. Ms O’Connor said: ‘The Annual Allowance has now increased from £40,000 to £60,000 and the Lifetime Allowance has been abolished, so the number of people being hit by these charges should drop significantly in future data.’ Individual contributions to private pensions, overall, reached the highest level yet in 2022 at £11.9billion, up from £11.7billion the previous year. Ms Guy said: ‘It’s encouraging that pension contributions and the amount received from pension tax relief both increased this year, showing that most pension savers are still managing to save for the future, despite a challenging financial environment.’ However, she noted that in a ‘cruel twist’, lifetime allowance charges soared last tax year, just before the charges were abolished this April. Ms Guy said: ‘The rules changes were a complete surprise and many wealthy pensioners will be absolutely gutted to have triggered a 55 percent penalty, just months before the rules changed.’ HMRC data showed Lifetime Allowance charges hit £497million in 2022 compared to £391million in 2021. The total value of Annual Allowance charges reported by schemes for tax year 2021/2022 was £335million. This has increased from £202million reported for 2020/2021. Ms Guy added: ‘Likewise, annual allowance charges were at a record high last tax year, just before the allowance was raised from £40,000 to £60,000 and there will be many disappointed pension savers who triggered a tax charge just before the rules changed.’