The way that pension freedoms are being used is becoming something of a worry for some financial experts.
Since new pension rules came into effect last April, huge sums have been withdrawn from pension funds. Between July and September 2015, The Financial Conduct Authority (FCA) found that 120,969 people who cashed in their pension took out the whole sum. This is not to say that this money had not been re-invested in a property or ISA for example, however there is no longer a requirement to buy an annuity. Some financial experts believe that without proper advice, people may make poor financial decisions and lose a lot of their savings.
The change has seen just 13% of people using their pension withdrawal to buy an income for life. What’s more, over 24,000 people took an income worth more than 10% of their savings, which could be unsustainable in the long term.
Look Out for Tax
Pension freedoms are intended to provide savers with more flexibility, and in many cases, this is being achieved. However, it is important to research and seek advice. Shopping around for the right pension products can save a lot of money too. Be aware of the amount of tax you will incur should you take out a lump sum. After the age of 55, you can take 25% of your pot tax free, but the rest of it will be subject to income tax.
Getting Help and Advice
Full figures from the FCA report can be found here. For advice on pensions, you can visit the government’s Pension Wise guidance service online and request a call back. You can also get in touch with us and we can help you to get the most benefit from your retirement options.