Chancellor George Osborne has revealed that over £1 billion has already been taken out of pension pots since the reforms came into play earlier this year, "a sign that this is a real success", he said.
Speaking at the House of Commons earlier this week, the Chancellor told MPs that the pension freedoms have been widely welcomed, and announced the latest figures of how many people have taken advantage of them: around 60,000 people have so far made use of the freedoms, he said, with more than £1 billion being transferred from pension funds as a result.
This suggests that most of those who have taken advantage of the freedoms have relatively small pension funds, or that they're not taking their whole pot in cash, as the figures equate to an average withdrawal of around £16,600. This will still undoubtedly come with some tax implications, but the charges involved may not be that prohibitive.
The figures come shortly after reports that many providers have been stopping retirees from accessing the freedoms by not yet offering the full range of flexibilities. There are also concerns that consumers may not be accessing suitable advice, something that will be monitored: "We have to make sure that people get the best advice, that the market responds and that companies up their game in helping customers make use of these freedoms," said Osborne. "We will be watching these things very carefully."
The Chancellor later confirmed plans to "strengthen people's rights to access their pensions flexibly and remove any unjustifiable barriers to doing so", by ensuring that people are not charged "excessive" early exit penalties and are treated fairly should they wish to transfer their pension to a scheme that offers flexible access to their savings.
A consultation has been launched to address these issues, with a cap on exit charges and a smoother transfer process being cited as potential solutions. The move has been welcomed by the industry, with Tom McPhail of Hargreaves Lansdown saying that "it is not acceptable to charge punitive exit penalties or to insist that investors pay for a financial adviser. Any pension providers or schemes that can't or won't deliver should let their customers leave so that they can benefit from the freedoms elsewhere".
If you haven't taken advantage of the reforms yet, are you planning to? You're no longer under any obligation to buy an annuity, but it's still vital to make sure you're aware of the risks involved in opting for alternative income streams.
Figures from Hargreaves Lansdown show that, while the number of people taking money from their pensions hasn't significantly increased, the way they're doing so has: less than one in 10 people currently choose to buy an annuity, compared with eight or nine in 10 only a couple of years ago, showing how quickly annuities have fallen out of favour with retirees.
However, it's important to remember that annuities are still the only way to guarantee an income throughout retirement, and if you withdraw your whole pension pot in cash and spend it, you could become reliant on state support in your later years – which may not be enough to give you the lifestyle you're hoping for. So, make sure to seek suitable advice before following in the footsteps of 60,000 others, and you can be confident you'll be left with the solution that's right for your needs.
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