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Pension: Over 55s forced to raid their savings due to COVID-19 – have you?

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Pension saving is an endeavour embarked upon by many people as they progress towards their later years, but due to financial circumstances some may need to access their pension sooner than they hoped. The ability to access pension savings has been brought about by pension freedom rules. The new rules were introduced from April 2015 in order to give people greater access to their pensions.

The rules have meant most people over the age of 55 have been able to access their pension through lump sum withdrawals or by moving it into a flexible drawdown. 

But new HMRC data has revealed the number of over 55s now accessing their pension savings has increased in recent months.

The data was revealed in the government’s release of flexible payments from pensions, which looked at withdrawal patterns this year.

The report said that throughout July, August and September 2020, 347,000 individuals chose to withdraw from their pension.

This represented a six percent increase during the same months of the previous year.

It went on to explain: “The number of individuals making withdrawals typically peaks in April, May and June, the beginning of the tax year, before dropping in July, August and September.

“However, this year, withdrawals have increase in July, August and September.

“This change in behaviour may be attributable to the impact of the COVID-19 pandemic.”

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Financial pressures have undoubtedly increased for many people during this time.

The closure of businesses in recent months has led some to be forced to lay off their staff, cutting many loose from financial security.

Indeed, the end of support measures – before the government decided on an extension – panicked many.

As a second lockdown commences in England this week, many will be forced to confront their financial circumstances once again. 

The total value of withdrawals taken from pensions since the commencement of pension freedom rules now exceeds £37billion.

While dipping into pension savings can be advantageous in the long run, it is not recommended as a regular occurrence.

This is because such behaviour can end up chipping away at the money a person has allocated towards their retirement.

As a result, the impact on a person’s later life goals and aspirations may be palpably affected by withdrawals earlier on in a savings journey. 

Steven Cameron, pensions director at Aegon, commented on the data findings.

He said; “There have been concerns that over 55s facing financial difficulties during COVID-19 would look to their pensions to provide a short-term boost and deplete their pension pot when fund values remain depressed.

“This will remain concerning as we move through a second wave, with employment prospects particularly concerning.

“Those concerned over withdrawing from their pension in a volatile market should seek professional financial advice.”

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