More than three quarters (78 per cent) of retirees have already dipped into their pension pots by the time they retire, data from the Scottish Widows has revealed.

Of those who have claimed early, more than half (52 per cent) withdraw funds five year before their selected retirement age (SRA), with 21 per cent opting to start taking out funds 9-10 years before they retire.

Indeed, the analysis found that, across 232,654 different retirement claim transactions between 2019 and 2023, 20 per cent of Scottish Widows' customers wait until their SRA before drawing down on their pension.

The average amount withdrawn by age 65 was £47,000. However, the analysis showed that, if this money had stayed invested from age 55 for an additional five years, they would have £13,925 more on average by the time they reach 60.

That figure rises to £24,661 if it were to stay invested for 10 years to age 65, marking a more than 50 per cent rise; and to more than £38,000 if invested to age 70.

Scottish Widows also ran a separate modelling exercise, conducted under the assumption that members claimed the maximum tax-free cash available at age 55.

This showed that the remaining £32,250 left in members’ pots after taking the tax-free cash, savers would on average be £10,441 better off after five years, and £18,496 after 10 years if they decided to stay invested.

Scottish Widows workplace pensions director, Graeme Bold, stated: “Our data shows that the vast majority of people withdraw money from their workplace pension before reaching retirement age.

"Whilst early withdrawals are often an unavoidable necessity, draining a pension pot too soon can carry risks which both providers and retirees should be taking steps to guard against where possible.

“As an industry, it’s crucial that we better understand pension holders’ behaviour, so that we can help them save enough for a comfortable retirement. More needs to be done to encourage people to keep their pensions invested for as long as possible.

"It’s up to pension providers to have the support in place for people through a lifetime of investment - before, during and after they reach retirement age.

“The pensions landscape is ever-changing – people are living longer which means pensions must cover longer retirements, and more people are choosing to phase into retirement with part time work. Therefore, it’s essential that pensions are flexible enough to be fit for purpose in today’s world.”

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