Britons are set to take advantage of accessing lump sums from pension pots at record levels in 2017, something that could increase the chances of widespread pensioner poverty, a retirement specialist has warned.
FTSE 250 firm Just, previously called Just Retirement, revealed that as more people than ever will reach their 55th birthday in 2017, large numbers will dip into their retirement pots as pension freedoms allow.
And, combined with more and more working lives being cut short by redundancy and poor health, reduced savings will need to be spread over a longer retirement period.
“It’s important to have some flexibility because it enables those who have to step back from working earlier than they had planned to fill the gap before state pension kicks in,” said Just's communication director Stephen Lowe.
Our advice to anyone tempted to take lump sums early is ‘mind the gap!’ to ensure any funds you take early don’t impoverish your future self.
Just said its own research indicated 42 per cent of those aged over 65 were forced to retire or go part-time earlier than they had expected and more than half said this had impacted on income levels required to fund retirement.
The anticipated hike in those accessing lump sums comes as a separate study revealed releasing equity from property had become a mainstream choice for retirees to fund post-working life.
Hymans Robertson said research conducted in conjunction with YouGov indicated a third of 55-70 year-olds were entering, or had entered retirement laden with debt.
Despite the fact that up to 25 per cent of pension pots can be taken tax-free, Karen Brolly, the head of product development at Hymans Robertson said: "Sources of lump sum payments are needed but they are scarce."
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The idea of releasing equity from homes after spending years paying down a mortgage has previously been an unappetising prospect to many. But, according to Brolly, times have changed. She said:
Rather than being seen as a ‘last resort’, equity release is now viewed as a mainstream option for retirement planning. We’ve seen an upsurge in take-up, and it’s easy to see its appeal for an increasingly debt-laden retired population.