The association representing the UK’s insurers has warned the financial impact of COVID is threatening a future pensions crisis.
Latest figures from the Association of British Insurers show the number of people accessing their pension as a flexible income has increased by 56% between April and September this year.
The ABI said an increasing number of pensions savers have started to withdraw funds after many pressed pause at the start of the pandemic. Comparing data when restrictions were eased in September to April, when the country was in full lockdown:
- The number of people taking only a tax-free lump sum has increased by 55%.
- The number of people withdrawing all of their pension in one lump sum increased by 94%. This increased by 51% during the same period in 2019.
- The number of people buying a guaranteed income for life (annuity) increased by 41%.
The only silver lining in a looming pensions storm is that currently withdrawals of all types still remain below 2019 levels.
The association said the increase in withdrawals is due to a combination of factors including some people returning to withdraw after pausing earlier in the year due to stock market volatility and some people needing the money after a change in circumstances.
The ABI said it has been monitoring people’s behaviour around pension withdrawals throughout the pandemic. Data from August and September shows withdrawal levels are getting closer to levels seen in 2019 but many pension savers are still resisting the urge to raid their pension pots in the face of continued financial uncertainty.
The ABI is urging anyone considering accessing their pension to seek impartial financial guidance from Pension Wise or regulated financial advice, and to ask their provider about their options.
Rob Yuille, Head of Long-Term Savings at the Association of British Insurers said: “Government restrictions, stock market volatility and employment prospects are just some of the factors weighing on pension savers’ minds when considering taking money out of their pension pot. Everyone is different and it is important to find the right solution for your circumstances. Getting financial advice or guidance can help provide options and clarity on what to do with your savings.
“We welcome the Money and Pensions Service confirming that they will develop a later life checklist for over-50s, especially those facing redundancy or income reductions in light of Covid-19.”