Britons in their 60s are being urged to avoid this one pension mistake or risk facing a retirement savings shortfall in later life.
Employees aged 60 and above are abandoning their workplace pension schemes at higher rates than any other demographic, according to new analysis from Fidelity International.
The investment firm obtained figures from the Department for Work and Pensions (DWP) revealing that over one in seven workers between 60 and State Pension Age chose to stop contributing between 2019 and 2023.
Marriana Hunt, an associate director at Fidelity International, said: “Workers in their 60s are more likely than any other age group to opt out of workplace pensions.” She warned that such decisions could prove financially damaging.
Over 60s are being reminded to avoid a major pension mistake
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Several factors drive workers in this age group to leave their pension schemes. Some individuals facing serious illness and shortened life expectancy prefer immediate access to cash for travel, experiences, or supporting family members.
Others believe they have accumulated sufficient retirement savings, particularly those with final salary pensions, property ownership, and additional investments.
A portion of workers opt out because their scheme prevents them from drawing benefits whilst still contributing to the same arrangement.
Many assume that with retirement looming, there is insufficient time remaining for contributions to grow meaningfully through compounding and investment returns.
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Financial pressures also play a role, with some workers needing extra take-home pay to manage debts or household bills. However, financial experts argue that many of these justifications fail to withstand scrutiny.
Workers who have reached pension access age can typically continue making contributions whilst simultaneously withdrawing funds when needed.
This approach often proves more tax-efficient, as individuals benefit from tax relief on payments in and can access up to 25 per cent of withdrawals tax-free. Opting out also means forfeiting employer contributions, effectively rejecting part of one’s remuneration package.
Modern defined contribution pensions offer greater flexibility than many realise, with most schemes allowing funds to be passed to beneficiaries upon death.
Ms Hunt emphasised that many workers fail to grasp a crucial point about pension flexibility.
She said: “The key thing many people don’t realise is that, once you’ve reached the age at which you can access your pension, you don’t necessarily have to choose between contributing and spending.”
This means numerous justifications for leaving schemes simply do not hold up under examination.
Caution is also warranted before concluding that savings are adequate, given that retirement can extend three or four decades.
Unexpected expenses such as care costs, financial support for family members, or simply outliving expectations can strain retirement finances considerably.