Older people face the prospect of “pensioner poverty” due to the rising cost of living and the falling value of the stock market, it has been claimed.
Figures from online investment platform Interactive Investor show its customers withdrew a quarter more from their private pensions in January as the cost of energy, food and petrol went up.
The figures have prompted concern that pensioners will not have enough money to see them through retirement.
In January, the average withdrawal from an Interactive Investor pension was £1,944, up 25% on the average for the same month in previous years. In February, the average was £1,910, up 7% on the same month in previous years.
Former pensions minister and campaigner Ros Altmann says these higher withdrawals are a “danger signal for the future”, particularly if they are taking their retirement savings early. “As the cost of basic essentials, such as food and heating have soared, people need higher incomes to cover their bills. Pay increases are far lower than current 30-year record high inflation rates, and people may be searching for other ways to make ends meet,” she says.
“For the over-55s, this could mean being tempted to take more money from their pension funds. This is worrying because private pensions are meant to support people after they finish work, rather than topping up pre-retirement earnings.
“Higher pension withdrawals now risks rising pensioner poverty in future and lower long-term growth.”
Becky O’Connor, head of pensions at Interactive Investor, says the average monthly withdrawal before the pandemic was £1,782. It then dropped to £1,534 as lockdowns were imposed and people were spending less.
The combined pressure of a need for cash to cover higher living expenses, and the falling stock market, leads to a “double depletion” effect on savings, she says, and an anxiety for pensioners.
“It’s the existential angst perennially faced by retirees on limited means, whose pensions have to last the rest of their lives.
“But it’s worse now than ever as a result of diminishing stock market returns and high inflation, which both erodes the value of the pot and puts pressure on people to withdraw more,” says O’Connor.
“Withdrawing more from a diminishing pot means a higher risk of running out of money later on. You may take the view that you need it now, whereas you might not need it in 10 or 20 years when you reach your 80s.
“That might turn out to be true, but even when you are 80, there can be unexpected calls on your income that you could need to cover.”
O’Connor says that she expects to see withdrawals rising even higher in the future as living costs increase, and there are more opportunities to spend with society reopening after the pandemic.