Pension pot generosity could land baby-boomers in trouble

One in seven over-50s intending to withdraw money from their pension pot are planning to give at least some of it away.

According to research from Saga, around one in seven baby boomers plans to cash in all or part of their pension. And of these, 13% will give some or all the money to their children, with another 4% planning to help out their grandchildren.
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"The vast majority of those in our survey plan to use the funds to secure themselves and their spouse a retirement income, but one in seven of the generous generations also want to ensure that where they can, they can also give their children and grandchildren a financial boost," says Saga's Lisa Harris.

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In March, the government announced sweeping pensions changes that, from next April, allow the over-55s to withdraw a series of lump sums from their pension pots for any purpose, rather than forcing them to buy an annuity with a single draw-down. A quarter of each payment will be tax-free, with the rest taxed at a marginal rate.

And separate research commissioned by investment firm Hargreaves Lansdown, reported in the Times, indicates that 12% plan to cash in the whole amount.

"With around 7.5 million people aged between 55 and 64 and half of households owning a defined contribution pension, even based on conservative estimates, we expect as many as 200,000 people to cash in their pension pots entirely next year," says head of pensions research Tom McPhail.

It, too, finds that 14% plan to use the cash to help their children - some to reduce the burden of university fees, and others to help get them on the property ladder.

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However, there is concern that some of these people may be in danger of leaving themselves short in the future through their generosity.

"Drawing down on their own pension pots now could mean risking their own retirement security if they miscalculate investment returns and their own needs for the future," Francis Fernandes of Lincoln Pensions tells the Daily Mail.

"If not properly advised, some may simply exhaust their pension pots and find themselves falling back on the State."

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Both surveys do, however, show that the over-55s aren't likely to blow the lot, as feared.

"Our latest figures clearly show that those who have spent their working lives saving for a comfortable future plan to ensure their pension pots work for them in retirement," says Harris. "It seems that fears that many older people would blow their pension funds on luxury cars have been proven unfounded."

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