The ‘new norm’ of those over 55 cashing in their small pension pots could leave them at risk of not meeting a minimum income standard in retirement, it has been said.

Research by the Joseph Rowntree Foundation based on the public’s view on how much weekly income is needed to achieve a minimum acceptable standard of living in the UK suggested a figure of £195.90 for a single pensioner, and £301.92 for a retired couple.

Based on the figures, benefits such as the state pension and the winter fuel allowance would provide 93 per cent of the income for a single person, around £13.71 less than the minimum required. For a couple, the benefits would provide 90.3 per cent, around £29.29 less than what is required.

As such a small amount is needed to take people over the threshold, Just has warned that people cashing in their small pension pots could be left with an income less than that advised by the Joseph Rowntree Foundation.

A 65-year-old would need a pension pot of about £14,000 to generate a guaranteed income of £13.71 a week, while around £30,000 could provide the £29.29 a week needed for a couple, based on current rates available on guaranteed income for life solutions, Just said.

Just Group communications director Stephen Lowe said: “The good news is that the sums needed are relatively modest, the bad news is that the financial regulator has described cashing in funds early ‘the new norm’ with tens of thousands taking small funds up front each month.”

Figures from the Financial Conduct Authority show around 600,000 pensions are being accessed each year. Seven in 10 savers accessing pension money for the first time are under 64 and nearly two-thirds of funds accessed are valued at less than £30,000, with 85 per cent of funds worth less than £10,000 and 61 per cent of funds worth £10,000-£30,000 being full cash withdrawals.

“The FCA found that more than half (55 per cent) accessing pension money were aged 55 and four in 10 didn’t even think about leaving the money invested,” he said. “Nearly half (46 per cent) said their pensions are not enough for them to live on,” Lowe stated.

He said the minimum income figures provide an “important sense-check” for anyone thinking of withdrawing pension funds. “It is important people don’t make pensions decisions they later regret and these minimum income standard figures are a good first target although most will aspire to higher incomes and living standards.

“That’s why it is so important that people at least take the free and impartial guidance on offer and in many cases professional advice too. These are the best safeguards available and should be a normal step in the process of accessing pension money.”

The Joseph Rowntree report also shows a weakening of state support for pensioners. In 2008 benefits provided 107.8 per cent of the minimum income standard compared to just 93 per cent now for single pensioners. For couples, the 2008 figure was 105.2 per cent compared to 90.3 per cent now.

“Effectively State benefits have gone from providing more than the minimum socially acceptable retirement income a decade ago, to providing less today,” he said. “That highlights the uncertainty that benefits for pensioners will continue to keep up with their most basic income needs and reinforces the need to make good decisions at retirement and to maintain some other sources of pension income.”

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