Covid-19 Crisis Sparks Worrisome Wave of Early Pension Withdrawals

The economic impact of the coronavirus pandemic is far-reaching, causing individuals across the UK to experience unprecedented financial strain. For some, this strain seems so overwhelming they’re looking to take drastic measures by tapping into resources earmarked for their future – their pension pots.

Soaring Numbers of Early Pension Withdrawal Requests

UK savers, caught in the upward spiral of economic uncertainly, are more and more frequently exploring the option of accessing their pensions prematurely according to online pension provider, PensionBee. Their data reveals a sixfold increase in early withdrawal inquiries within the short span of three months. While only five individuals sought to withdraw their pensions before turning 55 in December of last year, in March this number inflated dramatically to 31.

The median age of these early-bird pension seekers is reportedly 35, with some as young as 32. Take for instance the example of a young woman who, after being made redundant in her third trimester, felt compelled to dip into her retirement fund.

Rising Menace: Rogue Advisers and Online Scams

Sadly, this surge in early withdrawal appeals comes in the wake of an already tormented financial backdrop. With the introduction of pension freedoms in 2015, which endowed members the right to exchange their savings for lump sum cash, there’s been a noticeable uptick in fraudulent activity.

While retirees and savers have always been attractive targets for these fraudsters, the advent of the coronavirus pandemic has given rise to a new vulnerability. According to the City of London Police, there’s been a staggering 400 per cent increase in COVID-19 related fraud in a single month this year alone.

Even more worryingly, predatory scams are resorting to paid adverts on Google. A search for “early pension release under 55” returns a slew of sites promising to assist in accessing pension money, regardless of a person’s age.

Consequences of Early Pension Access

However, accessing pensions before the age of 55 can bear steep consequences. HM Revenue & Customs levy as much as a 55 per cent tax on such unauthorised withdrawals. Beyond that, it is usually only permissible to access a pension early under grave circumstances like expecting to live less than a year due to serious illness.

Words of Caution from Financial Experts

This concerning trend has financial experts and pension advocates urging savers to exercise extreme caution. James Walsh, a partner at law firm Fieldfisher, highlights the importance of education saying, “Pension schemes could be doing a lot more to educate their members,” particularly with the recent “huge increase in phishing operations.”

Clare Reilly, head of corporate development at PensionBee aptly summarized the situation, “Covid-19 has put us all in uncharted territory.” She urged individuals to be wary, especially when considering online financial advice surrounding early pension release.

Research from the All-Party Parliamentary Group on Pension Scams underscored Reilly’s sentiments. According to it, with more individuals confined to their homes due to lockdown restrictions, the likelihood of unsuspecting pension savers being contacted by scammers through phone or online has spiked alarmingly.

The environment surrounding this pandemic has created a perfect storm for financial predators. But by being vigilant, informed and critical of too-good-to-be-true offers, every saver has the power to protect their hard-earned retirement funds.