Tomorrow (6 April) marks the one-year anniversary of the pension freedoms, which unlocked a ream of retirement saving options for those approaching the end of their working lives.
In the months leading up to the launch of the reforms, fears abounded over whether pensioners would rush to cash in their precious pension pots and blow the money on luxury holidays and fancy cars, but one year on, it seems that these worries were unfounded.
Research carried out by Aegon found that just a tenth (11%) of those aged 55-65 have actually taken a lump sum from their pension, while only 5% have withdrawn their entire savings pot. What's more, those who did cash in were only taking away an average sum of £13,842, which suggests that the money was not going to be used to buy the fabled Lamborghini. The survey also found that 82% of those questioned aged between 55 and 65 are not planning on taking any of their pension savings just yet, which implies that many are taking a sensible and long-term view of their retirement income.
Of those who have dipped into their pension savings, the most common reason for extracting a lump sum was to settle debt, with 30% of respondents citing this as a key motivator for accessing their cash. A further 22% used the money to invest in a cash ISA, while the same proportion put the money into their bank account.
In other good news, it seems as though the increased flexibilities offered by the pension reforms have encouraged people to save more into their precious pension pots. The survey revealed that 15% of the working population are saving more into their pension as a direct result of the freedoms, which can only be good news for their long-term retirement plans.
Commenting on the results, Kate Smith of Aegon UK said: "There are positive signs that the freedoms are being used responsibly by those at retirement. Despite the initial scaremongering, the majority of people aren't withdrawing vast sums of money to embark on a huge spending spree." However, this doesn't mean that savers can rest on their laurels: "Over-55s must continue to be smart with their money," Kate cautions. "Cash ISAs and bank accounts are unlikely to provide the best returns in the current climate. Retirement could well last 20 or 30 years, so it's vital that people are helped to make choices that will give them a sustainable income."
If you want to ensure that you have the best possible set-up for funding your post-work years, then it is never to early to start planning and saving!
If you haven't yet been enrolled in your company pension scheme, get in on the action early! The sooner you start contributing, the sooner you can take advantage of extra contributions from your employer. And if you are already paying into a scheme, now may be a good time to review how much you are paying in each month – if you can afford to, it may be worth increasing your regular contribution so that you can give your pot a decent boost!
Saving into other investment vehicles is also a great way to add some insulation to your retirement nest egg. ISAs can be a great way to save while shielding your money from the tax man, and if you are comfortable with a little more risk, a stocks & shares ISA could be an ideal long-term savings vehicle. If you're interested in this option, you may want to consult with an independent financial adviser to make sure that this is an option for you.
Check out the top cash ISAs
Read our guide on stocks & shares ISAs
Find out if an annuity could be the retirement product for you
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