Four-fifths (80 per cent) of people between the ages of 55 and 64 did not know their pension contributions will be capped if they withdraw taxable amounts from their pot, according to NFU Mutual.

The company noted that figures from HMRC show that, in the third quarter of 2020 alone, 347,000 people dipped into their pension pots, a move which triggers a cap that limits future contributions, including employer contributions, to £4,000 each tax year.

The pension firm’s research also found that almost a third (32 per cent) of people still working over the age of 55 planned to dip into their pension before they retire, making a limit on their contributions more likely.

Additionally, more than two-fifths (43 per cent) of the age group who had pensions were planning to continue paying into them.

NFU Mutual chartered financial planner, Sean McCann, said: “Tapping into a pension after you reach 55 can be enticing, but a large majority of people do not realise it limits how much they and their employer can subsequently save into a pension.

“Considering many workers over 55 will be at the peak of their earnings, they risk missing out on contributions from their employer as well as valuable tax relief.

“Many who tap into their pension do so without seeking financial advice, so are unaware of this trap. It’s always important to seek advice when making financial decisions that could impact your income in retirement.”

One in five (20 per cent) of 55-64 year olds who planned to take money out of their pension were doing so to make up for lost income as a result of the coronavirus pandemic, while 12 per cent of respondents said they had changed their attitude towards accessing their pension due to the pandemic.

McCann added: “These results suggest a significant number of workers plan to dip into their pension before they retire. We may see even more people dipping into their pension as the Chancellor’s furlough scheme and support packages unwind next year.”

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