Early access to retirement may seem like a potentially attractive option to jump-start short-term finances, especially during the uncertain economic times that endure due to the COVID-19 pandemic, but experts have warned that by tapping into Upon retirement, people can inadvertently injure themselves by negatively affecting their ability to claim benefits such as universal credit.
New research by consultants LCP and EngageSmarter has revealed that large numbers of people aged 55 and over who access their pensions using the new ‘retirement freedoms’ may be oblivious to the potentially devastating impact on their lives. benefits.
A new research paper released today explains how messing up retirement freedoms could cost people their benefits, while a new website tool has also been launched that allows savers to check if it would affect them. .
With cuts in universal credit looming and the end of the leave scheme, a growing number of people may be considering accessing their pensions for additional financial support, but this document and website warns that it could have an effect. devastating effect on their benefit situation.
Yet there is little awareness of this issue in the pension industry and little to prevent savers from making bad choices. When people who have not reached the statutory retirement age withdraw money from a pension fund, this can affect their entitlement to benefits in two main ways:
READ MORE: Retirees Must Pay 12% National Insurance! A new threat of health and social levy
If one of them takes money from a pension – perhaps because they are under financial pressure – it could have a negative impact on their benefits. But personalized advice and guidance on what savers should do in this situation is not routinely offered by pension plans, pension providers or official referral bodies.
There is a real risk that members unwittingly think that they are improving their financial situation by dipping into their pension, but end up deteriorating.
In response, the report’s authors – Matt Gosden and Peter Robertson of EngageSmarter and Steve Webb of LCP – have designed a free website tool where savers who collect benefits and plan to access their pension can get a feel for the impact this is likely to have on their benefits.
One of the authors, Peter Robertson, commented on the research findings, noting that the guidance currently available is not enough to properly inform people in need of counseling, which could put them in financial difficulty.
“The benefit system, especially for people of working age, was never designed with this in mind. With millions of people starting to build modest pension funds through auto enrollment, this problem will only get worse.
“It’s not reasonable to expect individual savers to understand all of this complexity, so the industry and regulators need to work together to help people make the right choices.”
One of the factors that could cause Britons to consider accessing their pensions is the removal of the temporary increase in universal credit, which will officially end on October 6, taking more than £ 1,000 away from applicants each year.
The £ 20 per week increase was introduced to help people weather the worst of the COVID-19 pandemic, providing an additional £ 1,040 per year for those in need of extra income. However, this will be removed in a few weeks and is expected to push more than half a million people into poverty.
A group of single mothers receiving universal credit recently appeared in parliament, calling on the government to keep the increase in place and warning that the loss of the extra money would mean they will struggle to feed their children.