21% of people plan to release cash over and above their tax-free lump sum from their pension funds while they are still working, according to research from employment benefits consultancy firm Portus.
This rises to as much as 27% among employees aged between 55 and 64.
The main two reasons for taking out cash are revealed as being to pay off debt or to have a holiday of a lifetime. Around 37% say they will use some or all of the cash to clear debts, and 35% to pay for a luxury break.
For those aged 55 – 64 who are planning to release funds from their pension before they retire, the corresponding figures are 35% and 28%.
However Portus warns that as more people release cash from their pensions early, it is likely to lead to more suffering financially in retirement; 58% of people currently in work don’t expect to have enough income in retirement and 49% claim they will have to work beyond 65 because they will not have enough money to live on.
The firm says the risk for employers is that staff will continue to work simply because they cannot afford to retire as they have spent a large proportion of their retirement savings.
Under pension freedoms that came into force in April this year people have more flexibility and can take pension money from age 55 whenever they want subject only to tax rules. Since the reforms came into force, over-55s have been releasing around £25 million a day from their pension funds.
Portus believe more people will release cash from their pensions as awareness of the option increases. Its research reveals that 22% of people in work aged 45 – 54 are not aware that they can do this, and 7% of those aged 55 – 64 are unaware of this.
Steve Watson, Portus Consulting commercial director, said: “Retirement has changed and more people are working longer. The shift from defined benefit to defined contribution pension schemes has generally resulted in people having less income in retirement.
“Now that it has become possible to withdraw more cash from your pension early, there is a real risk that people will give into temptation and take out money which they should save for retirement.
“The risk for employers is that staff will be forced to carry on working because they can’t afford to retire. Since the introduction of pensions freedoms people have been releasing around £25 million a day, but as more people become aware that they can do this, this figure will increase and more people will be unable to afford to retire.”
Portus says that employers need to do more to help their staff with their retirement planning which in turn will help employers with resource planning “it’s not just an issue for employees, it is increasingly an issue for employers; employees forced to remain in the workplace is not the best for engagement and productivity. Performance issues are inevitable and younger talented employees will become frustrated as career progression is slowed down” says Steve Watson.
To deal with these issues, Portus has launched RetirePort – an online solution aimed at helping employees understand retirement issues.
It aims to shift the focus of workplace guidance and education from simply looking at pensions to including all savings and investments. This necessary holistic approach has recently been raised in the Pension Freedom Guidance and Advice Report issued by the Work and Pensions Committee . Talking about the Government’s free advice service, the report states “Pension Wise guidance is currently too narrow for too many consumers. Decisions about retirement income products ae not best made in isolation from information on property wealth, benefit entitlements, tax implications, care costs or debts”.
RetirePort, provides individual guidance to employees and an online portal where they can track where they are with their pension funding alongside other investments, including property to provide a total retirement planning overview.
Employees can use the portal to outline scenarios and the impact on how they decide to take retirement income. They retain access to the service if they leave their job.