Pension Pot Raids

November 16th, 2015

New figures show that many over 55s are raiding their pension pots early to take advantage of the new rules, but doing so could leave you short later in life.

According to September 2015 rigures from the Association of British Insurers (ABI), over 55s in Britain are withdrawing money from their pension pot to the tune of £27 million a day.

ABI looked at the first three months since radical changes to the pension rules were implemented in April, to gauge how many people were taking advantage of the sudden ability to access their full pension pot. For April, May and June a staggering £2.5 billion was withdrawn from funds, with more than half of that amount taken as straight cash lump sums.

Whilst 25% of the pot could be withdrawn as a tax-free lump sum and used however you like, there were significant restrictions over how you could use the remaining three quarters of your pension to fund retirement. In most cases, this meant taking out an annuity insurance product. The advantage being you would receive a guaranteed income for life; yet rates available had fallen steeply over recent years, and many people mistakenly took out a poor deal, failing to realise they could do better elsewhere.

Of those who have opted to take a cash lump sum, the average amount withdrawn is £15,000. £1.1 billion has been paid out via 264,000 income drawdown payments, an average payment of nearly £4,200. In effect, these are people who have chosen to keep their pension invested for now and in the meantime withdrawn some money from their pot.