Clare Moffat, of Royal London, said: “Some people might be taking out larger amounts because they’re paying a deposit on a house for their children, the Bank of Mum and Dad idea. It’s a concern if they then need that money in retirement, because it’s locked away in a house they don’t own. People underestimate their longevity, but they might live for a lot longer than they think, and dipping into the pension pot can have a dramatic impact on retirement.”
The figures also show that 69pc of people taking their pot in full did so without consulting either regulated advice or the Government’s PensionWise service.
Ms Moffat added: “Most people know about being able to take 25pc tax-free cash from their pension, so when they get to 55 they might be thinking ‘I want to access that now’. Perhaps they want a new kitchen or to go on a holiday.
“Taking financial advice is important. If someone is still working then taking money out as a cash lump sum, where 25pc is tax free but 75pc is taxable, might not be tax efficient.”
A third of pots fully accessed by 55- to 64-year olds were also over £10,000, which could potentially trigger the so-called Money Purchase Annual Allowance.
Exceeding the allowance means a pension saver effectively loses their tax relief, because once you access your pension for the first time you can permanently limit the amount you can contribute in future. The allowance was £4,000 in 2022-23, but rose to £10,000 last year.
