March 29, 2024

Pension freedoms: Over-55s can make withdrawals from retirement savings whenever they wish

Older people are being urged to ‘stop and think’ before starting or bumping up pension withdrawals to make ends meet.

Soaring household bills are expected to push many over-55s into tapping their retirement fund earlier or taking out bigger sums than planned, but doing so involves significant risks.

Potential pitfalls include forking out too much tax, limiting your ability to pay into your pension in future, and even running your pot dry, warn experts.

One glaring red alert is that government forecasters have just sharply increased their estimate of the tax take from people making pension withdrawals in the year just ended, from £1.2billion to £1.7billion.

This sets expectations of a ‘new normal’ of pension dipping activity as people look to their retirement funds as a bank account to support their day-to-day living costs, says Andrew Tully, technical director at Canada Life.

‘This is understandable behaviour as people look to make ends meet but we need to remember that pensions are already likely to be stretched over a longer lifespan than previous generations and any withdrawals will need to be sustainable.’

Pension freedoms mean many older people now opt to keep their fund invested and draw down an income to cover spending, and if they are lucky splash out on enjoying their retirement too.

Meanwhile, some people have no choice and will have to step up withdrawals to pay…

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