Warning to over-55s: don’t raid your pension pot to cope with inflation

theguardian.com:

Pensions experts are warning over-55s against using their retirement savings to see them through the cost-of-living crisis.

Inflation soared to 9% in April as a result of the escalating price of food, fuel and transport, putting a squeeze on finances for many households. Those able to access their pension pots could be tempted to take out money to cover immediate costs, but this comes with the risk of having significantly less income in the future.

“As the cost of living squeeze continues to tighten, inevitably more people will be tempted to take more from their pension, or to start taking an income sooner than they’d planned, even if they’re still working,” says Steven Cameron, a director at Aegon, one of the UK’s largest pensions providers.

Legal & General said it had seen an increase in investors withdrawing from their funds this year compared with last and was “monitoring closely” whether this was due to the rising cost of living. In the first four months of last year, 5% of pension customers made an ad hoc withdrawal; this year, 18% did. “It is inevitable that with the cost-of-living crisis biting, people will be more likely to access their savings earlier and then draw down at higher rates,” says Emma Byron of Legal & General Retirement Solutions.

Since reforms made in 2015 by then chancellor George Osborne, savers have had easier access to their retirement money after the age of 55. Instead of being limited to a 25% lump sum, they have been able to draw down as much as they want from their fund.

Figures from HM Revenue and Customs show that in the last three months of last year, 428,000 people had withdrawn a combined £2.69bn from personal pension savings. Earlier this year Interactive Investor, the online trading