'Hidden dangers' of dipping into your pension - are you damaging your retirement?

Many workers in the UK over the age of 55 have taken the decision to access their pension early, effectively using their pension as a bank account as a means of aiding their finances in the wake of the impact of the COVID-19 pandemic. But doing so comes with risk which a lot of people might not be aware of.

New research from Canada Life has shown that nearly one in ten (nine percent) of over 55s have accessed their pensions while on furlough to help make ends meet. Many over 55s have flexibly accessed their pensions, with seven percent using both their tax-free cash and drawing down additional sums.

This triggers the Money Purchase Annual Allowance, which restricts any subsequent tax efficient savings, and caps the amount at £4,000 a year. Yet 13 percent of the over 55s plan to make additional savings or pension top ups once the furlough scheme ends.

This means that by making withdrawals from a pension, one may be unknowingly restricting their ability to save in the most effective way towards their retirement in the future and ultimately doing more harm than good.

Canada Life is also warning that flexibly accessing your pension could impact future benefit claims, for example support with council tax or affect universal credit claims.

READ MORE: State pension savers warned they could be missing out on £5,000: ‘Money they deserve’

© GETTY pension early access dangers

Andrew Tully, technical director, Canada Life said: “Using your pension as a bank account might appear as the obvious way to prop up your finances following an economic shock, but you need to be aware of the hidden dangers lurking beneath the rush for cash.

“If you plan to continue working, and want to top up savings through a pension, then the Money Purchase Annual Allowance will bite in an arbitrary and restrictive way. It serves no real purpose apart from preventing savers rebuilding their pensions post furlough.

“I’m in favour of simply removing the restrictions, given most people are unaware of the limits, and who may well find themselves on the wrong side of the rules while trying to do the right thing.

“The other hidden danger is the interaction between pension dipping and the impact on any future benefit claims if you are unable to find work. This is a complex area and it is worth taking expert advice before rushing into any decisions.”

DON’T MISS

DON’T MISS

Universal Credit row erupts: Boris warns uplift will mean tax rises for millions of Brits [REACTION]

‘People are dying!’ Why we must slash the State Pension age to 63 NOW – COMMENT [PENSION]

‘I was able to buy my sister a house’ – Teacher explains how she made £200million business [GUIDE]

Canada Life’s research carried out earlier in 2021 found that over two-fifths (43 percent) of over 55s who are working are completely unaware of MPAA restrictions, while a further 40 percent are uncertain about the details.

That could spell danger for savers, who may be making uninformed financial decisions that could come back to bite them in years to come.

The MPAA will apply once an individual first flexibly accesses a defined contribution arrangement (known as a trigger event). This essentially restricts the level of tax relievable contributions that can be made to a defined contribution scheme to £4,000 each tax year.

Canada Life have listed the most common ways to trigger the MPAA restrictions. These are taking an income payment from a flexi-access drawdown fund, taking an income from capped drawdown (in excess of the cap), being in a flexible drawdown plan before 6 April 2015 and taking an Uncrystallised Funds Pension Lump Sum (UFPLS).

© Express what is state pension

However, individuals may be able to take benefits without triggering the MPAA, for example, access only tax-free cash from drawdown, or take out a guaranteed lifetime annuity.

As the government’s furlough scheme comes to an end this month, Canada Life’s research also revealed that nearly half (46 percent) of currently furloughed workers have changed their retirement plans.

According to the survey, almost three in 10 (28 percent) of workers on furlough plan to retire later, while over one in six (18 percent) plan to retire earlier than previously planned. On the other hand, over one in three (36 percent) plan to retire at the same time as previously anticipated, and a further 18 percent are still undecided.

Those aged over-55 appear less worried about the impact of furlough on retirement plans than their younger counterparts. As a result of the pandemic and being on furlough, 53 percent of 18-34-year-olds said their retirement plans had changed, compared to 34 percent of those over-55s.

© GETTY pension early access dangers

Over a third (35 percent) of 18-34-year-olds on furlough now plan to retire later than planned, compared to just 10 percent for the over-55s. Furlough and the pandemic has accelerated retirement plans for one in four (23 percent) over 55s who plan to retire earlier, compared to 18 percent of 18-34-year-olds.

Mr Tully said: “The government’s furlough scheme has been a lifeline for millions across the UK, however we cannot underestimate the number of people who will come out of this scheme in a challenging financial situation.

“This is demonstrated by the fact that many are changing their retirement plans, with a third of younger people planning to retire later. Interestingly almost one in four over 55s are actually thinking about bringing forward their retirement and leaving work earlier than planned.

“This could have serious implications for the economy with decades of experience potentially leaving the UK workforce just as we face a jobs and skills shortage.”

Internet Explorer Channel Network
News Related

OTHER NEWS

Met Police say sorry to mother of two sisters murdered in a London park for ‘unacceptable' investigation – but she tells the force: ‘The time for apologies has long gone'

Bibaa Henry, 46, and Nicole Smallman, 21, were stabbed to death in WembleyThe sisters were out celebrating Ms Henry's birthday at Fryent Country ParkThey were stabbed to death by Satanic teenager Danyal Hussein, who had agreed to sacrifice women in return for winning the lotteryAn investigation by the police watchdog found no evidence of discrimination in the search for the two sistersMet Police has apologised to Mina Smallman for its 'unacceptable service' Read more »

David E. Kelley Series The Missing Scores Straight To Series Order From Peacock

Joe Seer/Shutterstock Legendary television writer and producer David E. Kelley has been handed the reins to a new show on Peacock, which is based on the Israeli crime novel “The ... Read more »

Walmart Announced Stores Will Be Closed For Thanksgiving Again This Year

© VIEW press – Getty Images Walmart has announced that stores nationwide will remain closed on Thanksgiving Day for the second year in a row. The move was made as ... Read more »

How is Daniel Jebbison getting on away from Sheffield United on loan?

© Provided by Football League World Jebbison Despite making his Sheffield United debut in the Premier League, it was always going to be tough for Daniel Jebbison to get a ... Read more »

"I'm afraid..." - Sky Sports journalist drops honest Man Utd claim involving Ronaldo & Sancho

Sky Sports reporter Michael Bridge thinks it’s unlikely that Manchester United will be involved in the title race this season. © GiveMeSport Man United manager Ole Gunnar Solskjaer looking bemused ... Read more »

‘Super Falcons remain African superpower' – Unuanel plays down Nigeria's defeat to Ghana

Nigeria’s women’s senior national team remains a strong force in African football despite losing to Ghana 1-0 in Sunday’s African Women’s Cup of Nations qualifier, according to coach Samson Unuanel. ... Read more »

The best city building games to rule the urban jungle

The best city building games give you power. Like, a lot of power. All the power, sometimes. And, depending on your own sensibilities, sometimes too much power. Which is to ... Read more »

The next vaccine exemption debate: 'My child, my choice'

The options for Americans who refuse to get vaccinated are rapidly shrinking. President Biden’s blanket COVID-19 vaccine mandate for federal workers or contractors and companies with over 100 employees means ... Read more »

The 5 Most Important Revelations From the 'Facebook Papers'

A more complete portrait of how Facebook was vividly aware of its harmful effects came to light Monday, both at Frances Haugen’s testimony in front of the British Parliament and ... Read more »

John Barilaro tells Icac decision to grant $5.5m to Wagga shooting club ‘highly unusual'

Photograph: Joel Carrett/AAP Former deputy premier of New South Wales, John Barilaro, has described the decision to approve funding for a $5.5m shooting range and conference centre in Wagga Wagga ... Read more »

B0i's VALORANT settings, keybinds, and crosshair

© Provided by Dot Esports Aaron “B0i” Thao is an Astra and Viper player who was recently moved from 100 Thieves’ bench to its active VALORANT roster. While the 24-year-old ... Read more »

63-year-old fishing with wife dies after they're thrown overboard, Michigan cops say

A man fishing with his wife Saturday in a Michigan lake drowned after they both were tossed from the boat, authorities say. Deputies in Leelanau County were dispatched to Little ... Read more »

Boo! 6 scary weather photos to get you ready for Halloween

This year has been full of frightening weather events. From major hurricanes, bomb cyclones, blizzards and even extreme drought, the weather has been sinister throughout the past year. Of course, ... Read more »

Met Police to apologise to family of murdered sisters for investigation which ‘fell short'

© Independent Breaking News The Met Police will issue an apology to a family of Nicole Smallman and Bibaa Henry for the way it responded when the sisters were reported ... Read more »

Expo 2020 brought positivity and new events to UAE, experts say

© Provided by Khaleej Times Expo 2020 brought positivity and new events to UAE, experts say The Expo 2020 Dubai has brought a lot of positivity and the MICE (meetings, ... Read more »

Expo 2020 Dubai: Sheikh Mohammed visits Palestine Pavilion

© Provided by Khaleej Times Expo 2020 Dubai: Sheikh Mohammed visits Palestine Pavilion His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler ... Read more »

Four biggest wins at the T20 World Cup

© Aamir QURESHI Scotland’s Mark Watt (R) was one of five batters to fall to the spin of Mujeeb Ur Rahman Afghanistan thrashed Scotland by 130 runs in a Super ... Read more »

Here's why Paul McCartney has stopped signing autographs

© Provided by Pinkvilla   Paul McCartney has stopped signing autographs, calling the practice “a bit strange”. In an interview with Reader’s Digest, the Beatles icon recounted being approached by ... Read more »

PICS: Salman Khan, Iulia Vantur, Isabelle Kaif, Sangeeta Bijlani & others grace Aayush Sharma's birthday bash

It’s time for Bollywood actor and Salman Khan’s brother-in-law, Aayush Sharma to get into full celebratory mood. While the trailer of his upcoming action drama, Antim: The Final Truth just ... Read more »

Rekiat Okpe's salon in Killarney caters for all your needs

© Vutivi/Supplied. Rekiat Okpe and her employees. Author: Tebogo Mokwena Read more small business good news on Vutivi Business News. Everything that Rekiat Okpe does sets her apart from those ... Read more »

Avbob announces R10 million disaster relief fund for small businesses

© Avbob. FILE: Author: Tebogo Mokwena Read more small business good news on Vutivi Business News. Funeral company Avbob has joined the list of big businesses that have pledged to ... Read more »

Makers of ‘Sita The Incarnation' congratulate Kangana Ranaut on winning her 4th National Film Award

One of the most prolific actresses currently working in Hindi cinema, Kangana Ranaut won her fourth National Film Award for Manikarnika in the 67th National Film Awards. Kangana took to ... Read more »

Watch Live: Convicted Murderer on Trial for Killing Police Officer

For prosecutors, this is their second chance to seek death against a man already convicted of murdering his girlfriend. Markeith Demangzlo Loyd, 46, will die in prison for killing pregnant ex-girlfriend Sade ... Read more »

A immunocompromised high schooler spoke in favor of mask mandates at a school board meeting. Parents in the audience booed and mocked them.

© Provided by INSIDER Podium Reza Estakhrian/Getty Images An immunocompromised high school student was heckled at a school board meeting in California. Rami Zwebti was defending mask mandates at the ... Read more »

Biden boosts his spending bills and Gov. Phil Murphy in New Jersey

President Joe Biden was introduced as the “transportation president” during a Monday afternoon stop in Kearny, New Jersey, that was designed to advance the “Build Back Better” plan and the ... Read more »

Ex-University of St. Thomas football player guilty of raping fellow student in dorm

A onetime University of St. Thomas football player has been convicted of raping a fellow student in a dorm room more than three years ago. Nicholas R. Schnack, 22, of ... Read more »

Crush vehicles of puppy smugglers at dock to act as deterrent, MPs told

Vehicles belonging to puppy smugglers should be crushed at the Port of Dover to deter others from committing the same crime, ministers have been told. The Animal Welfare (Kept Animals) ... Read more »

Georgia shipwreck's last giant chunk removed from water

FILE – In this Sept. 9, 2019, file photo, a Moran tugboat nears the stern of the capsizing cargo ship Golden Ray as rescuers can be seen near the bottom ... Read more »

'This is utterly disgraceful', 'End this madness' - Many Spurs fans erupt over 'painful' stat

© Provided by This is Futbol Nuno Espirito Santo Lots of Tottenham Hotspur fans have flocked to Twitter to share their anger at a stat to emerge following their latest ... Read more »

'Wonderful', 'Immense' - Many West Ham fans delighted with one man's 'class' from Spurs clash

© Provided by Transfer Tavern Ben Johnson with David Moyes A number of West Ham fans have been showering Ben Johnson with praise after his performance against Tottenham Hotspur on ... Read more »

‘New normal': Venezuela reopens schools after COVID-19 closures

© Provided by Al Jazeera More than 11 million students returned to class in Venezuela on Monday following an extended closure due to COVID-19 [File: Ariana Cubillos/AP] Millions of students ... Read more »

Cuba-U.S. tensions mount over pending protests on Communist-run island

© Reuters/ALEXANDRE MENEGHINI FILE PHOTO: Protest against the trade embargo on Cuba by the U.S. in Havana, Cuba HAVANA (Reuters) – Cuban President Miguel Diaz-Canel warned the U.S. embassy in ... Read more »

Facebook will fuel more unrest, whistle-blower tells UK lawmakers

© Provided by Al Jazeera Former Facebook employee Frances Haugen gives evidence to the Joint Committee on the Draft Online Safety Bill of the United Kingdom’s Parliament, which is examining ... Read more »

'You don't understand how messed up you are': Obama reveals Michelle told him to spend more time with Bruce Springsteen to help figure out his 'failings and flaws' that eventually led to podcast

'She says, "You know, he understands all his failings and flaws as a man, and you don't seem to understand as well just exactly how messed up you are"'Obama said he replied to his wife: 'You're right. No doubt' Michelle and Barack Obama met in 1989 while working at a law firm in Chicago and married three years later Springsteen and Obama have paired up now to produce a podcast and forthcoming book, 'Renegades: Born in the USA' Read more »

Gove compares 2016 leadership bid sabotage to an ‘unexploded bomb going off'

Michael Gove has likened his 2016 sabotage of Boris Johnson’s Tory leadership bid to an “unexploded bomb going off in my own hands”. The Communities Secretary caused surprise in the ... Read more »

UK phone companies will block scam calls from abroad that use ‘spoofed' British numbers to try and con innocent victims

Foreign criminals attempting to scam Britons via spoof numbers will be blocked by phone networks in future.  The calls show up as a UK number on phones but really come from ... Read more »

Radio 1 DJ Scott Mills engaged to boyfriend of four years after romantic proposal

RADIO 1 star Scott Mills has announced his engagement to boyfriend Sam Vaughan. Scott has been dating Sam for four years and surprised him with a romantic proposal on the ... Read more »

How to Score This Season's Hottest Gaming Consoles

Advertising Disclosure: This article is sponsored by one or more of the featured brands. © Provided by Slickdeals Though we’re still in October, the gifting season will be here before ... Read more »

Anton Du Beke to replace Bruno Tonioli on Strictly Christmas special — and could take over from him permanently

BRUNO Tonioli fans fear he won’t be back on Strictly any time soon — after Anton Du Beke stepped smoothly into his shoes. The flamboyant Italian, 66, will not return ... Read more »

Giants co-owner John Mara voices support for head coach Joe Judge

It’s been yet another rough season for the New York Giants and head coach Joe Judge, all of whom recently heard boos from home fans. Three was a bright spot, ... Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic