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Pension savings: can you be trusted with your money?

Pension savings

Since 2015, many people have had greater flexibility in how they access their private pensions as part of the so-called ‘pension freedoms’. But how good are you at managing your pension savings?

Following evidence sessions to the House of Commons Work and Pensions Committee, recent newspaper headlines have claimed that retirees are using the pension freedoms to recklessly spend on fast cars, booze and gambling.

There have also been a few vocal commentators who have called into the question the whole idea of giving retirees free access to their pensions. The fear is that the new rules for the over-55s are allowing people to cash in and then squander their life savings. But is this really the case?

Pension savings

Actually, the reality is less shocking. Our own research indicates that savers are, in fact, generally doing the right thing when it comes to dealing with their pension money.

Many people are opting to take just the tax-free lump sum and keep the rest invested and income drawdown continues to grow in popularity.

Savers cashing in entire pots invariably have other regular income streams to sustain them if need be. It’s usually smaller pots that are being cashed in – some 14% of people had done this in our survey, 11% with plans worth £30,000 or less and only 3% with pensions worth in excess of £30,000.

It seems that people are then using the money to further bolster and enhance their finances, with topping up their savings and investing in property popular uses of the freed up cash.

Your pension

The pension freedoms were devised to give people more control of their savings and to allow them to take bigger sums, earlier, if they desire. Hopefully you’ll agree that you can be trusted with your own money.

But too often people struggle to make good decisions with their pension and this could ultimately lead to them getting a poor deal,  and that’s why we’re campaigning for Better Pensions.

As well as having the right tools and information to be able to manage and plan your retirement savings, we think providers need to offer savers access to better-value, innovative products when it comes to making those key decisions at retirement. We’re concerned that too often people end up sticking with their existing providers and face high charges in poor value products.

Part of the Financial Conduct Authority’s review of retirement outcomes is looking at the complexities of accessing income drawdown products, including the various associated costs and charges. We think there’s a role for default products to play, and we want the FCA to introduce measures to better protect savers by developing a good-value default option for disengaged savers who tend not to shop around and also by capping the fees levied on those products.

How easy is it to manage your pension savings? Have you cashed in your savings yet? What did you do with the money?

Comments
bishbut says:
16 December 2017

Some people can but others cannot as with every thing we do give help or advice but many will still do the wrong thing every time they think they know better but usually don’t they will not listen at all

It is your savings, and you should have the freedom to take it and do with it what you will. The problem many people have is knowing what the best thing is to do with it, and for this they should ask for professional advice. But how do you find reliable advice?

Which? have set up Mortgage Advisers that, hopefully, provide sound and impartial advice. My proposal would have been much cheaper – set up Which? Trusted Motrgage Advisers and register those already in existence who meet appropriate criteria and can be “!trusted”. So I’d propose the same – Which? Trusted Financial Advisers, spread around the UK and assessed as meeting the necessary requirements of sensible fees, knowledge and impartiality. Finance is a complex field and we need to pay for expertise – but we need help to find it.

Michael Symes says:
20 January 2018

The piece on Final Salary Pension schemes in the latest Money issue, fails to mention that payments under the PPF will only rise in line with inflation in respect of pension entitlements earned from April 1997. This is subject to a maximum of 2.5% and, more importantly, pension earned prior to 1997 will not rise at all. For many people, the lack of indexation prior to 1997 under the PPF is an important factor when deciding whether to transfer out.

The main reason government relaxed the rules was to increase liquidity in a stagnant economy. The stuff about presion freedom was the sales pitch. I suspect they’d have been very pleased if more people spent it all on fast cars and booze.