Over-55s are being warned they risk harming their living standards in future by accessing their pension pots in the chaos of the coronavirus pandemic.
The Association of British Insurers (ABI) said it was concerned people could be tempted to offset immediate financial difficulties during the COVID-19 lockdown by utilising pension freedoms to access savings.
The industry body cautioned against hasty decisions given that values have been hammered by the financial market meltdown, which began in February, linked to the economic damage expected to be inflicted by the coronavirus disruption.
It saw the combined market value of the FTSE 100’s constituent companies drop by 30% in just a month – but it should be said that funds are usually invested in a range of asset classes to mitigate risk.
The ABI also highlighted risks from poor advice or scammers.
It issued its alert less than 24 hours after the Office for National Statistics (ONS) released the results of a survey which showed that almost a quarter of UK adults were being hit financially by the COVID-19 pandemic.
Almost a third were already using savings to cover their living costs, the study found.
The pensions lifeboat, the Pension Protection Fund, also revealed this week that the black hole in defined-benefit schemes was estimated to have risen by £11bn in March alone, with the total deficit hitting just shy of £136bn.
There have been separate concerns that reduced investment income, from things such as the collapse in company dividends, could tip savers into hasty choices to access their pensions.
The pension freedoms, introduced by George Osborne in 2015 while he was chancellor, allowed savers to utilise a drawdown product once they reached the age of 55 – taking the whole amount as a lump sum – despite concerns over opaque charges and a lack of sound advice.
Previously, only annuities – which offer a regular and set income over a set period of time – were available but were unpopular due to low rates.
The ABI said it was particularly concerned that people accessing their savings now would run out of cash as men were expected to live to 79, and women to 82.
Its director of policy, long-term savings and protection, Yvonne Braun, said: “Rushed financial decisions are rarely the right ones, even at this worrying and uncertain time.
“Lockdown will not last forever, but the decisions you make today about your pension could impact on your standard of living for years to come.”