Two million savers withdraw retirement cash before state pension age

More people are dipping into their pensions early than ever before. In fact, about two million savers withdraw retirement cash before state pension age. For some, it’s a smart way to handle rising costs. For others, it could mean real trouble later.

This new trend shows how many people find themselves between the need for quick cash and the goal of long-term financial security.

How big is the problem?

Since the rules changed in 2015, savers have taken out more than £100 billion from their pensions. About £36 billion of that came from people under 60. Another £29 billion came from those aged 60 to 64.

That means nearly seven out of ten withdrawals came from people younger than 65. The average withdrawal for under-60s was £27,600, and for those aged 60–64 it was £34,500. These are not small sums.

And because some data doesn’t include tax-free lump sums, the real total could be even higher. In short, taking pension money early has become normal for many people.

Why people are taking cash early

People withdraw pension money for many reasons. Some are strategic, while others are purely about survival.

1. Worries about tax changes

A big reason is fear of Inheritance Tax (IHT) changes coming in 2027. From then, pension pots will count as part of a person’s taxable estate. Because of this, wealthier savers are taking money out now rather than later. They want to avoid possible tax increases in the future.

2. Pension rule changes

Right now, anyone over 55 can use their defined contribution pension. But from April 2028, that age rises to 57. This upcoming change has already pushed some people to act sooner. They’d rather take their cash now than risk new restrictions later.

3. Living costs and debt

For many others, the reason is simpler: life is expensive. Food, energy, and rent have gone up sharply. Some people use their pension to pay off credit cards or loans. Others help their children with housing or use the money to fill a gap between jobs.

It’s easy to see why this feels tempting. However, what seems helpful now can cause financial pain in retirement.

The hidden dangers

Withdrawing pension money early gives short-term relief, but it can damage your long-term finances. Below are some key risks everyone should know.

1. Running out of money

The biggest danger is spending your savings too fast. Once the state pension starts, it may not be enough to cover all your needs. If your private pension has already been used up, you could face a serious income gap later.

2. Missing out on growth

When you take money out, that amount stops growing. Over time, compound growth can turn small savings into large ones. Therefore, early withdrawals mean you lose not just the money, but also the growth it would have earned.

3. Paying more tax than you expect

You can only take 25% of most pensions tax-free. The rest, HMRC will tax as income. So, a large lump-sum withdrawal can push you into a higher tax band. You could also face an emergency tax charge that takes months to reclaim. It’s often smarter to take smaller amounts over time.

4. Policy changes and uncertainty

Pension rules can change without much warning. Acting quickly because of fear may backfire later. By withdrawing early, you lock in today’s conditions and limit future flexibility.

Is early withdrawal becoming normal?

Financial regulators say flexible withdrawals by under-65s have become “the new normal.” That may sound harmless, but it carries risk. When too many people see pensions as quick-access savings, they forget the real purpose: long-term income for retirement.

Yes, some withdrawals are sensible. For example, using a small portion to clear debt or fund part-time work can make sense. However, many people take large sums without advice or a plan. Once you deplete all the money, rebuilding it is almost impossible.

How to make smarter choices

If you’re thinking about using your pension early, take a step back first. Ask yourself if the short-term gain is worth the long-term cost. Here are practical ways to stay safe:

1. Talk to a professional. A regulated financial adviser can explain how withdrawals affect your future income and tax.
2. Use Pension Wise. It’s a free government service that gives helpful, impartial guidance.
3. Take only what you need. Keep most of your pension invested so it can keep growing.
4. Spread withdrawals. Taking smaller sums each year usually reduces tax and protects your savings.
5. Keep other savings for emergencies. Having a cash buffer means you won’t need to touch your pension too soon.
6. Plan for the long term. Remember that many people live into their 80s and 90s. Your money must last decades, not just years.

By taking these steps, you’ll give your future self a better chance of enjoying a comfortable retirement.

What government and providers should do

While individuals must take care, the system can help too. Policymakers and pension firms could:

• Improve data. Collect more detail on who withdraws and why. That helps spot patterns and risks early.
• Educate the public. Clear campaigns about the risks of early withdrawal could stop hasty decisions.
• Simplify tax rules. Complicated rules confuse people and push them toward poor choices.
• Encourage flexible drawdown plans. Good products can let savers access small amounts safely without draining their pot.
• Raise the minimum age slowly. This gives people time to adjust and plan their finances.

Better rules and education can protect savers from draining their pensions too soon.

Get expert advice

The fact that two million savers have already withdrawn pension money before state pension age is worrying. It shows that many households face pressure today, but it also signals a risk for the future.

Using pension cash early may seem like a solution now. Yet, it can easily create a problem later, one that’s hard to fix when work and income are no longer options.

Before withdrawing, take time to plan, ask for advice, and think ahead. Your future self will thank you. After all, a pension is meant to provide peace of mind in later life, not a quick fix today.

Let Regulated Advice match you with a financial advisor for expert advice.