When cashing out may not mean coining it in

According to our research[1], one in five people (21%) are withdrawing cash lump sums from their pension as soon as they turn 55, with 10% withdrawing their entire pot. 

However, many are doing so without seeking guidance and understanding the financial consequences. This can include unexpected tax bills, losing access to benefits, potentially higher investment platform fees or missing out on long-term investment growth.

The research – which surveyed individuals over 50 to understand their retirement decisions and plans – shows that 32% of people who accessed their pension did so to cover essential expenses. A larger proportion (46%) said they took the lump sum “because they could”. 

While an instant lump sum of money can be tempting, there are risks to cashing out without financial advice and guidance. 

Our survey highlighted that nearly a quarter of those surveyed didn’t realise taking a lump sum could affect their entitlement to means-tested benefits. Importantly, 11% noted it did have a direct impact on their entitlement.

Among those who did withdraw a lump sum, two thirds (67%) took 25% or less to stay within the tax-free allowance, while 10% withdrew their entire pot.

If given the choice again, one in five (18%) would have withdrawn less or no money as a lump sum.

Support that you can turn to

Helping our clients’ pension scheme members make better financial decisions about their retirement is a key focus for us. It’s clear that a significant advice gap remains, and more education is needed.  

To help, we have partnered with Turn2us, a national charity tackling financial insecurity. The charity provides a wealth of information and support. As part of the partnership, we are signposting our pension members to the Turn2Us Benefits Calculator. 

This tool helps members check whether they are entitled to benefits and understand how changes to their circumstances may impact their benefit entitlement.

We believe pension savers should be armed with foresight over hindsight, so that they feel informed and confident with the decisions they make, throughout their retirement journey. 

Interested in reading more about DC pensions and investments? You can find our latest content on our designated DC blog page. 

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[1] Research conducted, on behalf of Legal & General, by Opinium between 3rd -9th December 2024, among 3,000 UK over 50s. Visit the newsroom to read our research press release.