It’s five years now since the then Chancellor, George Osborne, unveiled pension freedoms – allowing consumers to make flexible withdrawals from their pensions; described at the time as the ‘most radical change’ to private pensions for many years. This meant that anyone aged 55 or over could take the whole amount from their personal pension as a lump sum, generally paying no tax on the first 25% and the rest taxed at their marginal income tax rate.

The media at the time was quick to suggest that that there would be a flurry of people who would cash in their nest egg and drive towards the horizon in a sports car or set off on a round-the-world cruise, leaving them with little to live on during the remainder of their retirement years.

Fast forward five years and it seems that the truth lies somewhere in the middle. 

There was certainly a rush at the beginning of pension freedoms for people to withdraw cash. In fact, according to the Association of British Insurers, £4.7 billion was withdrawn in the first five months of pension freedoms in 2015. Since then, the rate of withdrawal has slowed. 

According to the latest figures from HMRC, in the last quarter of 2018, the amount people withdrew from their pension funds fell to its lowest level since pension freedoms were introduced in 2015. In total in 2018 Q4, 264,000 individuals withdrew payments totalling £1.9 billion – amounting to £7,197 average withdrawals per person. 

Interestingly, larger numbers of people have been taking advantage of pension freedoms – 628,000 is the highest number recorded thus far – but they are withdrawing smaller amounts.

It does suggest that people are being more cautious about cashing in large amounts from their pension funds. This could be due to a number of reasons, including the unsteady investment market and worries about eventually running out of money. Others are no doubt aware that we are living longer and are nervous about touching their pension pots, while some individuals are probably just confused about what pension freedoms actually means for them. 

Some people have certainly been enjoying their new found ‘wealth’ in one way or another. Not all have ‘blown’ the money, some have accessed the cash for home improvements, for example. 

Canada Life recently spoke to 505 over-55s who used pension freedoms between 1 and 8 March this year and discovered that nearly half – 40% of consumers – who accessed their pension for cash for the first time were still working. For many of us, 55 is an early age to enter retirement, so this isn’t surprising. In addition, 24% of those questioned said they were continuing to pay into a pension, having flexibly accessed at least one pension while leaving the rest invested.

Of those opting to spend some of their pension cash, 21% spent it on holidays; 21% on home improvements; and 14% on new cars.

The flexibility offered by pension freedoms has given real choice to consumers – but the key thing is to approach this opportunity with a clear head and make prudent financial decisions. That’s where independent advice from an independent IFA – such as The Goodman Partnership – makes a real difference. We are chartered financial advisers Tunbridge Wells and can look at the goals you have and help you to fulfil them, while also making sure your needs are covered for the rest of your retirement days. 

According to the Canada Life research, 10% of customers regret their decision to use the pension freedoms. We would suggest that these were consumers who opted not to seek financial advice… If you are considering taking advantage of the benefits pension freedoms undoubtedly offer, give The Goodman Partnership – your independent financial adviser Tunbridge Wells - a call on 01892 500600 first.

 

 

 

 

 

 

 


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