Record numbers raid pension pots to cover mortgage bills

PENSIONERS risk running out of money in retirement as record numbers raid entire pensions pots to cope with surging remortgage rates.

Almost half a million pension pots were emptied when they were accessed for the first time during the 2022-23 tax year, figures show.

Savers took a record £5.3bn in cash, paying income tax of three quarters of what they withdrew, to cover rising mortgage bills, according to the Financial Conduct Authority (FCA).

Of the 420,727 pots taken in full, the average was about £12,500, but tens of thousands took pots worth more than £30,000, the Financial Conduct Authority said. This was up from around 395,000 the prior year.

The most common age group for those making total withdrawals was 55 to 64-year-olds, who have not yet reached state pension age, with 294,694 pots accessed. The next age group, 65 to 74-year-olds, accessed 114,601. Pensioners are already under pressure because of the freeze on tax thresholds, and experts warned that those taking money now could run the risk of running out of money in retirement.

Jason Hollands, of Evelyn Partners, said: “One of the factors likely driving higher withdrawals from pensions will be the need to aggressively pay down mortgages.

“For those who took out fixed rate mortgages at the record low rates available a couple of years ago, the prospect of refinancing these with interest rates at the highest level since the 2008 global financial crisis hangs over them like Damocles’ sword. Some of those tapping into their pension pots to cope with budgetary pressures could be in a position to rebuild their pots with ongoing contributions. But for those who can’t or don’t, early access might raise the spectre of running out of funds later in retirement.”

Paul Leandro, of consultants Barnett Waddingham, said: “The FCA should not be surprised by the increasing levels of cash withdrawals from pension pots, but they should be worried.

“The current pension landscape looks dire. Not enough contributions going in, coupled with too much cash being withdrawn too early, makes for a very bleak future ahead.”

He added pension freedoms introduced by George Osborne in 2015, which allowed savers to take a 25pc taxfree lump sum at the age of 55, opened up a “Pandora’s box”.

“The temptation to draw cash rather than secure retirement income is great, especially in light of the cost of living crisis.”

‘The FCA should not be surprised by the increasing levels of cash withdrawals from pension pots’