The pension freedoms led many people to predict a rush for pension cash, as retirees were given the chance to access their entire pot should they wish. Happily, it seems that most have taken the sensible option and resisted the temptation to empty their pot in one go, with research suggesting that the majority won't take too much.
Research from Partnership has revealed that the over-40s surveyed intend to take an average of 27% of their pension pot in cash when they retire, just marginally above the tax-free allowance. Only 13% intend to take more than half of their pension pot in cash and a mere 6% intend to take the whole lot, suggesting that most are aware of the risks involved and will take alternative measures to fund their retirement.
However, there are variations depending on age, with those aged 51-55 being most likely to take more than half of their pot as cash (18%), while 46-50 year-olds intend to take the largest proportion as cash (31%). Those aged 56-60 were most likely to take their entire pot as cash, with 9% of this age group planning to go down this route.
As for why they wanted the money? Well, 45% want to keep it in a bank account so they could treat themselves, 18% plan to spend it on a holiday or something to celebrate retiring, and 31% intend to repay borrowing (17% wanted to repay debt and 14% plan to repay their mortgage with the cash). Other priorities include replacing their car (16%) or household appliances (11%), which shows how far-ranging the plans are.
It seems that most understand the potential implications of cashing in their pots, and while 45% of 16-75 year-olds surveyed were supportive of the freedom to allow retirees to spend the money as they see fit, others were more cautious. In fact, 18% said that only those with medical conditions or who have actually retired should be able to take the cash at 55, while 34% say that if people 'blow their cash' they shouldn't be able to ask for state support.
Andrew Megson, managing director of Retirement at Partnership, said that most people appear to want to spend the cash they take out on "sensible choices" such as repaying debt or replacing the car, and that "while some have predicted a dash for cash following the introduction of the pension freedoms, most people appear to be intending to take only marginally more than they might have before".
He went on to add: "Arguably, withdrawing money to put into a savings account can have tax implications, but building a nest egg for expenses is certainly sensible. [Nonetheless,] it appears that while people are keen on the idea of more pension freedom, they are still relatively prudent in their approach to spending their pots – and expect others to be as well."
The freedoms may give you more options when it comes to using your pension savings, but the key is to not make rash decisions. It's important to fully understand the risks involved in taking the pot as cash – you wouldn't want to run out of money in later life, after all – as well as all your available options, ensuring you're able to make an informed decision.
Start the process by consulting Pension Wise for free, impartial guidance on your options. Ideally, follow this up by seeking independent advice, and if you're considering an annuity – which is still the only way to secure a guaranteed income throughout retirement – consult our no obligation annuity planning service to find out more.
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