Cashing in small pension pots at age 55 to rely on state benefits in retirement could leave thousands of people vulnerable and struggling to achieve an acceptable income in later life, suggested new analysis from Just Group.
The warning comes shortly after the publication of Minimum Income Standards (MIS) conducted by the Joseph Rowntree Foundation (JRF), which reflected the views of the public in relation to how much weekly income is needed to achieve a minimum acceptable standard of living in the UK today.
The JRF’s 2018 report suggested the MIS for single pensioners is £195.90 per week, with benefits such as their state pension and winter fuel allowance, providing 93% of that, or about £13.71 less than the minimum required. While the MIS for pensioner couples is £301.92 per week, with benefits providing 90.3% or £29.29 less than required.
Commenting on the findings, Just Group communications director Stephen Lowe said: “State Pension and other benefits don’t quite provide enough income for pensioners to achieve these minimum income levels so retirees will need to top-up using their own savings or pensions.
“The good news is that the sums needed are relatively modest, the bad news is that the financial regulator has described cashing in funds early ‘the new norm’ with tens of thousands taking small funds up front each month.”
Lowe stated that a 65-year-old would need a pension pot of approximately £14,000 to generate a guaranteed income of £13.71 a week, while around £30,000 could provide them with £29.29 a week, based on the current rates available on Guaranteed Income for Life Solutions.
The communications director further stated that the MIS figures provide an “important sense-check” for anyone considering withdrawing their pension funds.
“It is important people don’t make pensions decisions they later regret and these MIS figures are a good first target although most will aspire to higher incomes and living standards.
“That’s why it is so important that people at least take the free and impartial guidance on offer and in many cases professional advice too. These are the best safeguards available and should be a normal step in the process of accessing pension money.”
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