People using pension freedoms to dip into their retirement pot at 55 could end up losing their benefits, Sir Steve Webb, partner at LCP and former pensions minister, has warned.

According to Webb, as furlough schemes finish and the additional £20 on universal credit payments comes to an end, people who are over 55 and still working might become concerned about their jobs or might find themselves made redundant.

This could put a strain on people’s finances, and lead to them dipping into their pension pots under the pensions freedom regime, to help tide themselves over.

Approximately 1.6m people aged 55 to 65 are on benefits, such as universal credit or the employment and support allowance, and this number could rise.

“By dipping into their pension they could actually wipe out the help they get with the council tax or even their entire universal credit”.
Webb

But in a new paper, called ‘How getting pension freedoms wrong could cost you your benefit’, LCP and fintech company Engage Smarter have warned tapping into the pensions pot could mean tapping out of valuable benefits.

The 26-page paper looked at how the means-tested benefit system for those under pension age and for those over pension age interacts with different pensions freedom choices, such as taking an income through drawdown or taking a lump sum.

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