Over 55s lead charge to cash in pensions

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Over 55s lead charge to cash in pensions

Savers are spending their pensions earlier than ever, according to official figures

Pensions pay slip

Pensions pay slip Photo: Alamy
Dan Hyde
By Dan Hyde, Consumer Affairs Editor
12:22AM GMT 08 Jan 2016
Savers are spending their pensions earlier than ever as people in their fifties take advantage of the Government’s pension reforms to make home improvements, go on holiday or clear their mortgages, official figures show.
In April George Osborne gave the over-55s unlimited access to their savings, ending the need to buy an annuity.
Information provided by 95 of Britain’s largest pension companies indicates that savers aged between 55 and 59 are now the most likely of any age group to access their pots.
Approximately 35 per cent of those withdrawing money are under 60, up from around 22 per cent before the reforms were introduced, analysis of the data by The Daily Telegraph showed. Just under 35 per cent are aged 60-64 and 23 per cent are 65-69. The remaining 7 per cent are 70 or over.
88 per cent of withdrawals were below the threshold88 per cent of withdrawals were below the threshold  Photo: ALAMY
The latest statistics from the Financial Conduct Authority regulator found almost 2,000 people a day withdrew money from pensions between July and September last year. In two-thirds of cases savers cashed out the entire amount.
People are typically taking out less than £30,000. Around 88 per cent of withdrawals were below the threshold and 57 per cent were below £10,000.
“We do need to guard against unintended consequences; in particular we need to make sure investors have savings to last right through their later life and not just the first few years.”
Tom McPhail
Experts said the pension reforms had created a financial “boom” for the under-60s. They said
younger savers were concluding that small pension pots were unlikely to make a large difference to their quality of life in retirement and might be better used immediately.
Alan Higham, an independent pensions analyst, said: “In the past people could access their money at 55 but were finding they could only take a quarter as a tax-free lump sum. So most people waited until they retired at 65.
“Now savers are able to take the entire pension as a lump sum they are withdrawing it to put in the bank, spend or pay off debts.”
Tom McPhail, of pension company Hargreaves Lansdown, said: “In the first six months of this tax year, we have already seen as many people accessing their pensions as we used to see in a typical year before pension freedom.
“Whilst in the main the pension freedoms have been hugely beneficial and widely welcomed, they are also fundamentally changing how we save for retirement.
“We do need to guard against unintended consequences; in particular we need to make sure investors have savings to last right through their later life and not just the first few years.”
Separate data from Hargreaves Lansdown showed that the largest proportion of people accessing their savings, at around one in five, intended to use the money to cover living expenses.
The next most popular reason to cash in pensions was paying off a mortgage or credit card, followed by going on holiday and buying a car.
The FCA found a total of 178,990 pensions were accessed during the three-month period to September. Of these 68 per cent, or 120,969 pensions, were fully cashed out. The remaining 32 per cent were accessed to take an income.
Just under nine in 10 of the pensions where the money was fully taken out had less than £30,000 in them, the FCA said.
Around 13 per cent of people chose to buy an annuity with their money, a drastic fall from before the reforms, when it was the most common route to an income.
Annuities provide an income for life, ending only on death, but have a poor reputation due to years of rip-offs in which customers were sold sub-standard deals.
Of those who did buy an annuity, just 48 per cent shopped around for the best deal. The difference between the best and worst rates can add more than £1,000 a year to the return from a £100,000 pension pot.
Savers typically rejected contracts with generous “guaranteed” annuity rates worth more than 10 per cent – a return that is difficult to match on other investments. Just 32 per cent of people took up this option, with most preferring the cash.
Experts raised concern that just 17 per cent of customers had used Pension Wise, the government’s guidance service.
Fiona Tait, of pension firm Royal London, said: “The guidance service is designed to help people to recognise the risks associated with their chosen course of action.”
However, she took issue with the fact that many women were unaware of even the initial changes which were set out in 1995.
“The problem is nobody knew about this,” she said. “The reality is that less than half of women knew that this would affect them as late as 2008.”
Ms Black added: “Women were not notified, it wasn’t reported and they weren’t given enough time to be able to make the appropriate arrangements.”
Meanwhile, the impact of the Coalition’s decision to speed up the process means that those women who are affected “had only five years notice to try and remedy life plans that had been in place for years”.
Geraint Davies, Labour MP for Swansea West, agreed and said the acceleration means the life plans of the women affected “has been disrupted and destroyed and impoverished”.ess Association

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