New research from Portus, the employment benefits consultancy firm, reveals that one in five people (21%) plan to release cash over and above their tax-free lump sum from their pension funds while they are still working. This rises to as much as 27% among employees aged between 55 and 64.
Worryingly the main two reasons for taking out cash are revealed as being to pay off debt or to have a holiday of a lifetime. Around 37% say they will use some or all of the cash to clear debts, and 35% to pay for a luxury break. For those aged 55 – 64 who are planning to release funds from their pension before they retire, the corresponding figures are 35% and 28%.
However Portus warns that as more people release cash from their pensions early, it is likely to lead to more suffering financially in retirement – 58% of people currently in work don’t expect to have enough income in retirement and 49% claim they will have to work beyond 65 because they will not have enough money to live on.
The risk for employers is that staff will continue to work simply because they cannot afford to retire as they have spent a large proportion of their retirement savings, Portus warns.
Under pension freedoms that came into force in April this year people have more flexibility and can take pension money from age 55 whenever they want subject only to tax rules. Since the reforms came into force, over-55s have been releasing around £25 million a day from their pension funds.
Portus believe more people will release cash from their pensions as awareness of the option increases. Its research reveals that 22% of people in work aged 45 – 54 are not aware that they can do this, and 7% of those aged 55 – 64 are unaware of this.
Portus says that employers need to do more to help their staff with their retirement planning which in turn will help employers with resource planning “it’s not just an issue for employees, it is increasingly an issue for employers; employees forced to remain in the workplace is not the best for engagement and productivity. Performance issues are inevitable and younger talented employees will become frustrated as career progression is slowed down,” says Portus Consulting Commercial Director Steve Watson.
To deal with these issues, Portus has launched RetirePort – an online solution aimed at helping employees understand retirement issues. It aims to shift the focus of workplace guidance and education from simply looking at pensions to including all savings and investments.
Employers benefit by offering enhanced guidance and financial education to staff which will improve engagement with retirement planning. Portus research shows 36% of workers want their employers to provide support on retirement planning rising to nearly half (46%) among those aged between 35 and 44.
The wider service alongside the online portal offers bespoke workshops for employers who can decide when and where the sessions are run as well as general and open workshops for a range of companies. Initially workshops will be run in London but will be offered across the country as the service expands.
