Over three quarters dip into pension pots early

New research from Scottish Widows shows the extent to which older workers dip into their pension pots before the state retirement age.

Man looking at bills to depict cost of living crisis


More than three quarters of retirees have already dipped into their pension pots by the time they retire, according to new data from Scottish Widows.

Of the 78% who claim early, more than half (52%) withdraw funds five years before their Selected Retirement Age (SRA), according to the research, with 21% opting to start taking out funds nine-10 years before they retire.

Analysis of Scottish Widows workplace pension scheme customers’ behaviour, across 232,654 different retirement claim transactions between 2019 and 2023, revealed that only 20% wait until their SRA before drawing down on their pension.

The data revealed that the average amount a customer withdraws by age 65 is £47,000. Financial modelling by Scottish Widows shows how much that £47,000 could grow if it remained invested for longer:

– If the money stayed invested from age 55 (when the member would have first been able to take benefits) for an additional five years, they would have £13,925 more on average by the time they reach 60 . That figure rises to £24,661 if it were to stay invested for 10 years to age 65 – a rise of more than 50%; and to more than £38,000 if invested to age 70.

A separate modelling exercise was conducted under the assumption that members claimed the maximum tax-free cash available at age 55 which currently stands at 25%, equivalent to £11,750
If the same modelling was run with the remaining £32,250 left in members’ pots after taking the tax-free cash, savers would on average be £10,441 better off after five years, and £18,496 after 10 years if they decided to stay invested.

Graeme Bold, Workplace Pensions Director at Scottish Widows, said: “Our data shows that the vast majority of people withdraw money from their workplace pension before reaching retirement age. Whilst early withdrawals are often an unavoidable necessity, draining a pension pot too soon can carry risks which both providers and retirees should be taking steps to guard against where possible.

“As an industry, it’s crucial that we better understand pension holders’ behaviour, so that we can help them save enough for a comfortable retirement. More needs to be done to encourage people to keep their pensions invested for as long as possible. It’s up to pension providers to have the support in place for people through a lifetime of investment – before, during and after they reach retirement age.

“The pensions landscape is ever-changing – people are living longer which means pensions must cover longer retirements, and more people are choosing to phase in to retirement with part time work. Therefore, it’s essential that pensions are flexible enough to be fit for purpose in today’s world.”

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