Avoid the 'dash for cash', pension savers warned
Pension savers are being urged to resist the temptation to make a "dash for their cash" when the new retirement freedoms come into force next month.
Consumer group Which? and the Association of British Insurers (ABI) have joined forces to remind people not to rush into a decision they later regret when it becomes easier for them to get their hands on their pension pot from April 6.
They are emphasising that this date will mark the start of the pensions revolution and it is not a deadline for people to act.
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Around half a million people will be handed the ability to take control of their retirement savings for the first time when the new rules start, according to Government estimates.
Which? has launched a free guide, supported by the ABI, to help people secure a good deal for their savings and make the most of the free, impartial guidance sessions that they will be offered under the new Government-backed Pension Wise scheme which will run alongside the reforms.
It suggests that before their Pension Wise appointment, people can prepare by making a note of outgoings such as regular bills, payments and debts, as well as income sources such as investments, cash savings, employment and benefits.
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The guide says that questions to consider asking during the appointment include: When can I access my pension savings? What choices do I have? and How can I limit the tax I pay?
Huw Evans, director general of the ABI, said: "Don't be tempted to 'dash for the cash', but take time to consider carefully your options - especially as rising life expectancy means we can expect a longer retirement.
"The Government's Pension Wise service should be your first port of call to help you understand your options, and make the right retirement income decision."
Fears have also been raised in recent weeks that fraudsters will see the new pension freedoms as an opportunity to bombard consumers with unwanted cold calls and texts about their pension.
The Financial Conduct Authority (FCA) has said that it is alert to the risk of scams.
The new freedoms will apply to people aged 55 and over who have a defined contribution (DC) pension.
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They mean that they will no longer be required to buy a retirement annuity with their pension pot.
Instead, they will be able to take their pot as they wish, subject to their marginal tax rate in that year.
Around 320,000 people retire each year with a DC pension, but because the reforms were announced in last year's Budget, some people have been hanging on in order to be able to take advantage of the reforms.
It is estimated that around 540,000 people will be able to use the new freedoms from April 6.
Which? said its own research had found that half (51%) of consumers did not know how much they would need to live on comfortably in their retirement.
Despite seven in 10 (69%) retired people telling Which? they were confident before they retired that they would have enough to live comfortably, more than one in 10 of those (11%) later found it difficult to cope on their pension and other savings, according to the survey of more than 2,000 people.
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Pension savers were also being reminded to bear in mind the tax implications of cashing in their pension pot, which could mean some people being pushed into higher tax brackets if they took large chunks out of their pension.
Pensions minister Steve Webb previously said he was relaxed if someone wanted to buy a Lamborghini with their pension pot.
Calculations by Which? found that to buy a Lamborghini Aventador LP 700-4 Roadster at £288,840, someone would need a pension pot of £415,000.
The consumer group said the tax bill for cashing in a pot of this size would be around £126,000, which would equate to enough money to buy a Porsche 911 Turbo.
Which? executive director Richard Lloyd said: "People approaching retirement aren't going to turn into financial experts overnight and so, with more options on the table, it's vital people take their time to make the new freedoms work for them.
"Our free guide offers tips to get the most out of the Pension Wise guidance service, including advice on things to consider in advance and questions to ask during your appointment."
The guide is available to download at www.which.co.uk/pensionwise2
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