Pensioners raiding saving pots amid cost of living crisis

·Finance Reporter, Yahoo Finance UK
·2 min read
A traditional piggy bank smashed open with a hammer. Pensioners have been withdrawing more income from their pensions in the first half of this year compared to previous periods.
Pensioners have been withdrawing more income from their pensions in the first half of this year compared to previous periods. Photo: PA

Pensioners have resorted to taking thousands of pounds from their saving pots in order to keep up with surging bills.

Retirees have been withdrawing an average of £17,268 from their pensions in the first half of this year, up from £14,108 across previous periods, according to figures from Interactive Investor.

“People are withdrawing more from their pension this year, at a time when the cost of living is biting. Life is not getting any easier or less complicated in the near term, but the best investment platforms can be part of the solution,” Richard Wilson, CEO, Interactive Investor, said.

Read more: Millions falling short of decent standard of living amid cost of living crisis

There has also been a drop in the size of the tax-free lump sum being withdrawn by the newly retired so far this year.

The average saver aged between 55 and 64 took about £20,000 less from their pensions as a lump sum, withdrawing just £54,557 in the first half of the year, compared with £75,159 in the same period last year.

Among those aged 65 to 74, the average amount taken as a lump sum in the first half of this year was £41,687, down from £64,305 in the first half of last year — 35% lower.

“The decrease in the size of tax-free lump sum partly reflects the impact of declines in the value of stocks and shares over the period reducing the amount people can take, but also a more circumspect approach,” Becky O’Connor, head of pensions and savings at Interactive Investor, said.

“Gone are the days of worrying about whether people would go and blow the whole 25% lump sum on a Lamborghini. Now, it seems people would feel uncomfortable even shelling out for a second-hand Toyota Prius (7203.T),” she added.

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Retirees also appear to be taking their tax-free lump sum later. The average age for a lump sum payment has gone up by 1.5 years since before the pandemic, from 59.9-years-old in the first half of 2019 to 61.4-years-old by the second half of 2020.

Contributions to self-invested personal pensions (SIPPs) among workers aged between 25- and 44-years-old have fallen by 8%, from an average of £584 to £538 in the first half of this year.

Watch: When should I start paying into a pension?