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28 Mar 2018

Savers withdrawing pension cash to put in savings account

The pension freedoms mean that savers now have more control over how they use their pension pot. But are they using it wisely?

In a survey conducted for Retirement Advantage, research firm Censuswide quizzed 1,000 people aged 55+ who have taken advantage of the flexible rules to access a pension. Of these, 43% had used the freedoms to take some cash because they felt it was nice to have a bit extra to spend, while 36% said they needed the money. One in five (19%) people said they had withdrawn cash from a sense of concern over the regulations changing.

So what did these people use the money for?

Almost a third (29%) put the money in a savings account, while one in four (25%) used the money for home improvements. Another 18% paid off non-mortgage debt, 17% went on holiday, 14% paid themselves a regular income, 12% bought a new car and 11% paid off the mortgage.

Others gifted some money to children, helped family members onto the property ladder, or gave a gift to grandchildren.

Commenting on the findings, Andrew Tully, pensions technical director at Retirement Advantage, said: “A picture is emerging of significant taxable cash sums being withdrawn under the pension freedom rules, driven by desire and necessity.

“More worrying is the significant number of people telling us they are taking the cash because of a concern that the regulations will change in the future. Taking money out of a tax advantaged pensions environment to put the money in a savings account is rarely a great idea. But I can understand why people are concerned about moving goal-posts as pensions have been a political football for many years.”

HMRC data shows that a total of £6.54bn was withdrawn in taxable cash payments from pensions last year — up almost £1bn on the previous year (£5.69bn in 2016).

Tully also warned that more people are choosing to access cash from their pension without seeking professional financial advice, and scammers and criminals continue to target pension savers.

A separate survey for Retirement Advantage found that 14% of non-retired people aged over 50 with defined contribution or individual pensions have been approached by phone, text or email in the last three months by companies offering free pension advice or investment opportunities.

“Scammers are using increasingly sophisticated ways of conning people out of their money,” Tully warned.

The proposed ban on pension cold-calling “can´t come soon enough,” he added.

“The simple message should be, if it looks too good to be true, it almost certainly will be. If you´ve received unsolicited offers of a free pension review or new investment opportunities, simply delete the email or hang-up.”

Copyright © M2 Bespoke 2018

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