One in 10 pension dippers regret taking their money early

Around one in 10 retirees (8%) who withdrew money from their pension before leaving full-time work say they regret it.

Under the current rules, pension holders can start to access their retirement savings from the age of 55. But leaving your money invested in your pension until you're 65 could leave you with significantly more to live on once you stop working, a new analysis shows.

Bridging the gap to State Pension age

In a survey by retirement specialist Just Group, nearly three in 10 (28%) retirees said that they had withdrawn money from their pension between the age of 55 and when they finished working full-time, either as a lump sum or via income drawdown.

Almost a third (32%) of this group said they needed the income to bridge the gap to State Pension age or because of redundancy or lower earnings. More than half (52%) had ended up retiring sooner than planned.

However, while just over a quarter (27%) spoke with a regulated financial adviser, nearly half (49%) did not receive any advice or guidance prior to making the decision to dip into their pension.

Accessing pension savings before retiring from full-time work is helping large numbers of people to cope with rising everyday living costs and sudden or unexpected events such as redundancy or ill-health, said Stephen Lowe, group communications director at Just Group.

"Around 45% of those withdrawing pension cash before leaving work said it was simply to take tax-free cash, but a significant minority of about a third are doing it to supplement their income," Lowe added.

"Whether taking pension money before retiring is a good or bad decision depends on people's individual circumstances, but it's important to remember that pension money taken and spent before retirement will not be available to provide income later in life."

'Nearly £25k' boost from leaving your pension invested until age 65

A separate study by Scottish Widows suggests that the number of people accessing their pension savings early may be even higher.

More than three quarters (78%) of retirees have already dipped into their pension pots by the time they retire, according to financial modelling by the pensions and life insurance company. Analysis of its workplace pension scheme customers' behaviour between 2019 and 2023 revealed that only 20% wait until their selected retirement age before drawing down on their pension.

The average amount a customer withdraws by age 65 is £47,000.

Scottish Widows' number-crunching revealed that, if that sum stayed invested from age 55 for an additional five years, savers would have £13,925 more on average by the time they reach 60. That figure rises to £24,661 if it were to stay invested for 10 years to age 65 -- a rise of more than 50% -- and to more than £38,000 if invested to age 70.

Separate modelling was conducted under the assumption that members claimed the maximum tax-free cash available at age 55 which currently stands at 25%, equivalent to £11,750 on average.

Savers would on average be £10,441 better off after five years, and £18,496 after 10 years, if they decided to keep the money invested.

Saving enough for a comfortable retirement

"Whilst early withdrawals are often an unavoidable necessity, draining a pension pot too soon can carry risks which both providers and retirees should be taking steps to guard against where possible," said Graeme Bold, Workplace Pensions director at Scottish Widows.

"The pensions landscape is ever-changing -- people are living longer which means pensions must cover longer retirements, and more people are choosing to phase in to retirement with part-time work. Therefore, it's essential that pensions are flexible enough to be fit for purpose in today's world."