Nearly one in four over-55s plans to take cash out of their pension funds while still working.

That was the conclusion in a report by employee benefits consultancy Portus, which found 24% of employees aged 55-plus plan to take out money over and above the tax-free lump sum. This figure rises to 27% among those aged 55 to 64.

The most common reason for taking out money was to pay off debt or to pay for a luxury holiday. Portus warned that the “dash for cash” will mean staff will continue to work simply because they cannot afford to retire as they have spent a large proportion of their retirement savings.

Around 37% said they will use some or all of the cash to clear debts, and 35% to pay for a luxury break. For those aged 55 – 64 who were planning to release funds from their pension before they retire, the corresponding figures were 35% and 28%.

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However Portus warns that as more people release cash from their pensions early, it is likely to lead to more suffering financially in retirement - 58% of people currently in work didn’t expect to have enough income in retirement and 49% claim they will have to work beyond 65 because they will not have enough money to live on.

The researchers estimated more people will release cash from their pensions as awareness of the option increases.

Its research reveals that 22% of people in work aged 45 – 54 are not aware that they can do this, and 7% of those aged 55 – 64 are unaware of this.

Portus Consulting commercial director Steve Watson said: “Retirement has changed and more people are working longer. The shift from defined benefit to defined contribution pension schemes has generally resulted in people having less income in retirement.

“Now that it has become possible to withdraw more cash from your pension early, there is a real risk that people will give into temptation and take out money which they should save for retirement.

“The risk for employers is that staff will be forced to carry on working because they can’t afford to retire. Since the introduction of pensions freedoms people have been releasing around £25 million a day, but as more people become aware that they can do this, this figure will increase and more people will be unable to afford to retire.”