A personal finance expert appearing on BBC Morning Live warned that almost a third of people are withdrawing from their private pension pots at the earliest opportunity ahead of a major rule change.
A BBC expert has warned pension holders that people are currently withdrawing their savings ‘at the first opportunity’ ahead of a significant upcoming change. Appearing on BBC Morning Live, personal finance expert Laura Pomfret explained that individuals are acting now before the new rules come into effect.
The change is being driven by a shift in the state pension age. The State Pension age for both men and women currently stands at 66, and is in the process of rising to 67 between April 2026 and March 2028.
Ms Pomfret explained that this is also affecting the age at which people can access lump sums from their pensions. She said research from the Pensions Commission, published recently, revealed one: “Thing that we thought was interesting was it showed that pension pots are being accessed at the earliest opportunity. So almost a third of people are accessing their pension pots at the earliest opportunity. This is again private pensions and perhaps you may be doing it because you’ve got debts you want to pay. You might want to pay off your mortgage. You might want to help family out.
“There’s lots of reasons why people do want to access their pension money early. Now but taking money early can have a knock-on effect if you think if you’re taking a chunk or even a small amount out of the pot less. It’s got less money in it to grow and it may leave you with not enough when you reach retirement because the current state pension age is 66.
“This is going to increase in stages over the next two years to 67 and the earliest age that you can access your private pension is currently 55. It will be rising to 57 from April 28. So, this does cause concern because if you’re accessing your pension early, it could leave you short later. If someone no longer wants to work and access that pension early, they’ve got to work out how to bridge the gap until they reach state pension age.”
She noted that the report also highlighted that people were failing to set aside sufficient funds for their retirement, with those on low and middle incomes most vulnerable. She said: “It also found that just under half of working age adults are not saving into a private pension at all. That’s around 18 million people and times are tough right now and so we can imagine why people may be choosing to do that or you through no fault of their own.
“Only 4% of self-employed workers are saving into a pension. That’s one in 25 people. So that was also something that came out of the report.” Regarding whether individuals are putting away sufficient funds, she emphasised the importance of considering what people envisage for their retirement years.
She advised that people ought to take into account ongoing expenditure, regular household bills, and their travel aspirations. They should also reflect on dining out habits, and their current outgoings including mortgage repayments and rent during retirement. Research into retirement living standards suggests that the minimum expenditure required in retirement is approximately £13,400 per year for a single person and £21,600 for a couple. She added: “This would cover essentials. It would leave some money left for leisure, but not a lot. That’s kind of like the bare minimum in terms of expenses.”
At a moderate level, the figures rise to £31,700 per year for one person and £43,900 for two. A comfortable standard of living in retirement would require around £43,900 per year for a single person and £60,600 for two, affording considerably greater financial freedom and the ability to enjoy life’s luxuries. Ms Pomfret said: “So you can see how the expenses can absolutely stack up especially if you want a comfortable retirement. Obviously important thing inflation will affect these figures. These are figures today and so if you’re retiring in 10 15 20 years you need to factor that in. So whilst this is a guide and it’s really helpful for us to think through this is where a regulated independent financial adviser can help you put together a financial plan properly um and help you think of all the other things that are important when you come up with this figure.”
