How pension savers risk falling short

78% of pension savers dip into their pension pot before retirement.   

More than three-quarters of members are dipping into their pension pots before reaching retirement age, leaving them exposed to running out of money in later life.  

While early withdrawals are often an unavoidable necessity, draining a pension pot too soon does have associated risks which providers, like us, and members should be taking steps to mitigate against, where possible. 

78% of pension scheme members access their pots early, according to our analysis of customer behaviour across more than 230K retirement claim transactions between 2019 and 2023*. 

Of the 78% who claim early, more than half (52%) withdraw money five years before their Selected Retirement Age (SRA), with 21% opting to start taking out money 9-10 years before they retire. Only 20% of members wait until their SRA before drawing down on their pension, with less than 2% making claims after reaching retirement age. 

Staying invested in a pension instead

We’ve found the average a member withdraws by age 65 is £47,000 and have done some financial modelling to show how much that could have grown if their pension remained invested for longer: 

• If the money stayed invested from age 55 (when the member would have first been able to take pension benefits) for an extra five years, they would have £13,925 more on average by the time they reach age 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 extra if invested to age 70. 

As an industry, it’s crucial that we better understand pension holders’ behaviour so that we can help them save enough for a comfortable retirement. Our annual Retirement Report is one way we do this with our own pension members. 

More needs to be done to encourage people to keep their pensions invested for as long as possible. It’s up to pension providers to have the support in place for people through a lifetime of investment – before, during and after they reach retirement age. 

The pensions landscape is ever-changing – and people are living longer which means pensions must cover lengthier retirements, with more people choosing to phase in to retirement with part-time work.  

It’s essential that pensions are flexible enough to be fit for purpose in today’s world. We’re working hard to evolve our pension default investment proposition to support retirement income for longer and adapt to the reality of people taking their first benefits at 55.  

We’re also working on tools and nudges to help educate and engage members along the journey, and doing what we can right now to show them their financial wealth as a whole in our app, via our Moneyhub partnership. 

We want everyone to have the chance of a comfortable retirement. The risks of people taking pension savings too early are all too clear to see. 

* Analysis of 232,654 different retirement claim transactions between 2019 and 2023.