UK savers risk poverty in later life as they are cashing in their pensions too quickly

Middle-aged savers risk poverty in later life because they are cashing in their pensions too quickly, warns a new report

Middle-aged savers risk poverty in later life because they are cashing in their pensions too quickly, a hard-hitting report from top insurers warns.

They claim huge numbers of savers are already in danger of running out of funds less than five years after new pension freedoms were introduced by George Osborne as chancellor.

The Association of British Insurers suggests many savers are withdrawing money at an ‘unsustainable rate’, with almost £33billion cashed in.

Large withdrawals could ‘mean later life hardship for many’, it says.

More than 350,000 savers cashed in their entire pension pot last year alone and almost one million have taken this option in just three years.

The ABI, whose members manage more than £550billion of savings, says: ‘There are concerns that if the current rate at which many people are typically withdrawing cash continues then future pensioners will be at risk of running out of money.’

The findings provide ammunition to critics of the changes who warned that many people could treat their pensions like a cash machine.

Former pension minister Sir Steve Webb had even joked that savers could spend their cash on a Lamborghini if they wanted to.

The pension freedoms introduced in April 2015 allow people to cash in their entire pension from the age of 55 or take it in regular instalments.

This means they no longer have to lock up retirement savings in a poor-value annuity when they stop work.

Previously, savers could only withdraw a quarter of their pot as a tax-free lump sum at 55. The pensions ‘revolution’ was welcomed by consumer campaigners who argued that savers had been ripped off in the past and should have more choice over what to do with their own money.

The ABI report points to official figures from HM Revenue & Customs which show almost £33billion has been taken as cash from pension pots since the freedoms were introduced.

It says the number of savers cashing in their entire pension in 2018/19 was 355,000, the highest since the freedoms were introduced. Four in ten flexible income withdrawals were at an ‘unsustainable annual rate’ of 8 per cent and over, adds the report.

It also warns that nearly half (48 per cent) of those who accessed their pension pots did so without receiving regulated advice or guidance.

Yvonne Braun, ABI’s director of policy, long-term savings and protection, said, it is time to review how the pension freedoms are working. They may have brought about a retirement revolution but it is too soon to tell how things will turn out.

The Association urges the Government to increase the minimum age at which savers can access their pensions.

However Baroness Altmann, who was pensions minister in 2015, said ‘proper analysis is urgently needed to see the full picture’ as many savers have more than one savings pot.

Official figures show 90 per cent of pensions which are totally cashed in are smaller pots worth less than £30,000.

The Financial Conduct Authority has said most savers are investing or saving money they withdraw. But the watchdog has warned of a rise in scams with fraudsters persuading savers to move money into bogus investments.

A Treasury spokesman said, thanks to the reforms, over 1.3million savers have benefitted from being able to choose from a range of options which better suit their needs. We continue to monitor trends in the retirement market.