Perils of dash for pension cash

Tens of thousands of people have cashed in their pension pots since the introduction of new freedoms but just one in 10 have turned to the government's guidance service to help them.

Figures from the City watchdog, the Financial Conduct Authority (FCA), on what those aged 55 and over are choosing to do with their pensions now they can get their hands on the whole lot are shocking.

For the first time since pension freedom was introduced in April we see the true scale of the dash for pensions cash. Just over 200,000 people have accessed their pension some way since April and over a quarter, 57,000, have cashed in their pension in full.

Lack of guidance

No one predicted the figures would be as high, and they are frightening. Firstly because these people may be left without any pension income to live off in later life, and secondly because the figures who used the Pension Wise service are so low.

Just 10% of people accessing their pension under the freedoms had an appointment with Pension Wise, despite it being free and impartial – people weren't interested. And a large number of people clearly just wanted to take the money and run.

If they didn't bother to use a free service, then we can probably safely assume that most people didn't pay for advice on what they should do with their pension, and the fallout from going into this life changing decision could be huge.

If you've taken your pension in order to spend it all, then you may face an old age in penury. Granted some people may have got their hands on the cash because they have other pensions and investments to rely on in retirement, but there will be plenty who don't.

These people may be relying on the state pension to kick in but recent figures from the Department for Work and Pensions shows that thousands are due to miss out on the full flat-rate state pension of £150-a-week that comes in next year because they don't have enough qualifying work years.

And before we even worry about later old age, let's not forget the huge tax bills that could be winging their way to people who have taken all their pension savings out in cash.

While this may be good for the Treasury coffers, it won't be good for retirees' bank balances. The dash for cash is terrifying and it is set to continue unless we encourage people to take guidance and think long and hard about the retirement they face without enough money.

Read more:

Pensions freedoms: one-in-eight will take it all out

How advisers are preventing pension transfers

New pension freedoms used by 60,000 pensioners