Concerns have been raised about the pressure the coronavirus pandemic may be putting on retirement savers to withdraw cash without considering the longer-term impacts.
Some savers said they have withdrawn money directly because of the crisis without first taking financial advice to understand the implications, according to a survey.
One in 16 (6%) of people surveyed in the 40 to 67 age bracket said they have taken money out of their pension pot as a result of Covid-19 without seeking financial advice, as had 3% of people above this age, a survey carried out in July by Opinium found.
People may be withdrawing money to plug gaps in their finances or due to concerns about recent market volatility. However those taking money out because values have dipped risk locking in their losses rather than allowing investments time to potentially recover.
For some people, there may also be tax implications from withdrawing pension cash. Under the pension freedoms, generally the first 25% of savings is tax-free and the remainder is subject to tax.
The research also found that, across all age groups, 16% had decreased the amount they were contributing to their pension pot since the start of this year.
However, a similar proportion – 15% – had increased their contributions since the start of 2020.
The research among more than 2,000 people across the UK was commissioned by retirement income specialists My Pension Expert.
The survey also found that nearly a third (32%) of pension savers do not know how their pension plan works or where it is being held.
Andrew Megson, executive chairman at My Pension Expert, said: “Failure to understand how their pension plans work, or where it is invested, could mean Britons are trapped in schemes which offer little value, or they could face hidden charges.
“Worse still, it could lead to ill-informed decisions, such as withdrawing too much too soon or moving savings to risky investments – potentially leaving consumers worse off in the long run.”
He added: “In such challenging times, consumers crave stability and guidance – professional advice can offer this.”
