Over one in five (21 per cent) people who withdrew a cash lump sum from their pension pot did so as soon as they turned 55, despite many not understanding the consequences of doing so, research from Legal & General (L&G) has revealed.

The research found that while some people (32 per cent) accessed their pension to cover essential expenses, a larger proportion (46 per cent) said they took the lump sum because they could.

The findings also highlighted “significant” risks for those who withdraw funds without advice or guidance.

More than a quarter (27 per cent) of UK adults aged 50 or over made decisions about their pensions without seeking advice or guidance, leaving themselves exposed to unexpected tax bills, as well as potentially higher investment platform fees or lower possible long-term investment growth.

In addition to this, the research revealed that 24 per cent of people who had withdrawn a cash lump sum did not realise that taking a lump sum could affect their eligibility for means-tested benefits, with 11 per cent saying it had a direct impact on their entitlement.

Among those who did withdraw a lump sum, two thirds (67 per cent) took 25 per cent or less to stay within the tax-free allowance, while 10 per cent withdrew their entire pot.

However, one in five (18 per cent) of respondents said if given the choice again, they would have withdrawn less or no money as a lump sum.

Commenting on the findings, L&G head of defined contribution, Rita Butler-Jones, said: “These findings are a stark reminder of the significant advice gap that many of our clients’ members face when it comes to making decisions about their approach to retirement.

“A decade on from pension freedoms, it’s clear there’s much more to be done to educate savers about the different options available to them and how to balance their short and long-term financial needs.”

In response to these concerns, L&G has partnered with Turn2us, a charity offering practical information and support to people facing financial insecurity.

L&G is “signposting” members to the Turn2us Benefits Calculator, designed to help members check their entitlement to benefits and understand how changes in circumstances could impact their entitlement.

Turn2us head of information programmes, Donisha Thompson, added that retirement should be an “exciting chapter” of life, but concerns about savings can make it stressful.

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