Consumers no regrets about plundering pension savings
11 April 2019
The majority of consumers who have flexibly accessed their pension savings since the introduction of the pension freedoms four years ago have no regrets about doing so, despite re-investing the money into low or no interest savings accounts, new research has shown.
According to Canada Life, 90% of people said they had no regrets, with two in five (40%) accessing their pension for cash for the first time while they were still working. Two fifths (60%) of cash withdrawals were subsequently invested in bank / savings accounts, while holidays (21%), home improvements (21%) and new cars (14%) were also found to be popular uses for the funds.
One in five (21%) respondents said they will ‘pension double dip’, but just 5% said they will withdraw a larger amount the next time round.
The vast majority of consumers said they were aware of the potential tax charges, with 92% recognising they would be taxed if they withdraw above the tax free-threshold and 87% knowing what that tax payment would be.
Yet, despite the growing popularity of pension freedoms, 68% of people accessing their pension have not sought financial advice to help with their financial planning. A similar proportion (66%) also admitted to not shopping around before buying a pension product, either annuity or drawdown, from their pension provider.
Andrew Tully, technical director, Canada Life, said that while many people appear informed and are making sensible choices, some behaviours are “embedded” and “poor decisions” are being made, which is likely to continue without intervention.
He commented: “There are clear tax implications from withdrawing money from a pension, and yet even with a high level of awareness, it doesn’t appear to have sated the appetite to grab the cash and put it into low or no interest bank accounts. The lack of shopping around continues unchecked. A significant majority are simply taking the easy route and sticking with what or who they know when looking at an annuity or a drawdown product.”
Tully added: “Interestingly, only 1 in 10 people suggested they had any regrets about their pension, however, one in three also admitted they had withdrawn cash out of necessity. Could we be storing up trouble for the future? I guess only time will tell.”
The research highlights*
*All the results discussed refer to those aged over 55 who have accessed their pensions from April 2015
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