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Pensions: What will you do with your pot?

Pensions: What will you do with your pot?

Category: Pensions

Updated: 14/05/2014
First Published: 14/05/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Everyone would like to get their hands on a stash of cash – and in the new pension proposals set out in this year's Budget, it seems that is just what pensioners are going to be able to do.

But this is not just any cash. This is your hard-earned pension fund and, most importantly, security for the rest of your life. So what decisions are you going to make when it comes to managing your own retirement money?

Partnership has been carrying out some research into what people would do if they received their entire pension pot in cash, and it looks like many of you are choosing to put security first. They found that 43% of those questioned would look for a savings bond or other product to make sure their capital was safe, while a further 36% said they would put it into a bank and use it when they need it.

An income is important for 23% who would look to buy an income-generating asset such as property, while 14% would invest in stocks and shares and other collective investments.

As sensible as making sure your money is secure sounds, there are some dangers involved and with inflation eating away at savings while interest rates remain low you could find the value of your cash deteriorating. Women could be most at risk of this, with 43% likely to put their pension into a bank account and a further 44% looking to invest in a savings bond. This is all the more worrying as women generally have lower pension assets and therefore their funds need to be working harder for them.

Repaying debt is usually a good move, as the rates paid on borrowing nearly always outstrip savings interest. A sensible 14% would repay secured borrowing, such as mortgages, while 13% would repay loans or credit cards.

It's always nice to treat yourself, but pensioners must be careful not to use up too much of their funds, as once the money is spent it will not be generating any further income. A holiday, car and other luxury items are on the cards for 14% of those questioned, 10% would use it to help family members while a further 9% plan to spend it on home improvements and upgrading their appliances.

Andrew Megson, managing director of retirement at Partnership, said: "This research clearly highlights that having saved during their working life, most people are keen to keep the money safe or use it to reduce their liabilities.

"However, with inflation at 1.6%, most instant access savings accounts are unlikely to be able to offer rates which meet or exceed this. Therefore, this careful management of their pension fund may actually mean that it is eroded over time."

That means it's even more important to consider all the possibilities.

So, what are your options?

If you plan to put your money into savings accounts you will want to consider the highest interest rates available. Cash ISAs are always the best place to start as they keep your cash away from the tax man, and then you could look at fixed rate accounts if you don't need to access your cash for a while as these almost always pay higher rates of interest. But remember, always ensure you have enough easily accessible for any emergencies that might crop up.

If your attitude to risk is fairly flexible, why not consider investing some of your fund into stocks and shares? Obviously there is the chance that you could get back less than you put in, so bear this in mind, but if you want the potential for larger returns and have enough in your budget to allow a little risk, then perhaps this could be a viable option.

Annuities have had some bad press over the years, and now people are not forced to buy one many may be discounting them. This would be an oversight as they still offer a cost-effective way to secure a guaranteed income, and if you compare the deals on offer and, if needed, seek some expert advice, you could find some competitive rates.

Perhaps you are feeling adventurous and are thinking of entering the world of the landlord. The buy-to-let arena has been enjoying record returns for many years now and many property investors have been reaping the rewards – so perhaps it's time to check out some of the buy-to-let mortgages available.

There are many choices available to pensioners now, and the added control and flexibility should be a good element for many. But, people need to take the time to research each market carefully, seeking guidance if needed, and this could set them up for a happy retirement.

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