Now minister warns OAPs: Don’t rush to blow pension on a supercar
HE is the Pensions Minister who famously said we should be free to blow our life savings on a Lamborghini.
But after liberating a nation to spend their money as they wish, Steve Webb has now urged people to take their time rather than make rash decisions.
Yesterday the biggest pension reforms in a century were launched, allowing over-55s to cash in their pension pots rather than being forced to buy a fixed monthly income.
But as Pensions Freedom Day finally arrived, the Government appealed for caution, perhaps fearing that some people will quickly exhaust their funds and be forced to rely on the State.
Mr Webb said over-55s ‘don’t have to rush this’ and insisted there was ‘a case for waiting and seeing’.
He said April 6 was the ‘starting gun’ and not a ‘deadline’, adding: ‘We want people to make informed choices. This isn’t a mad scramble rush to do something this morning.’
Asked about his flippant remark last year that people should be able to buy a Lamborghini with their pension, he admitted ‘you will pay a hell of a lot of tax’ if you do.
While the first 25 per cent of any withdrawals from pensions are taxfree, savers will have to pay income tax on the remainder. Those who withdraw their pension in one go face hefty bills if they are pushed into a higher tax bracket.
Official forecasts show that the Treasury is set to receive an additional £370million of income tax in the next year as a result of the changes. And documents published alongside the Budget suggest this could reach £3.8billion by 2020.
Research by consumer group Which? shows that buying a £228,000 Lamborghini Aventador would incur a £126,000 tax bill if you withdrew the cash in one go – enough to buy a Porsche 911 Turbo. But a study by insurer Aegon found that a third of over-55s were unaware of the tax implications of withdrawing all their money at once. Spokesman Kate Smith said: ‘People could lose out on thousands of pounds of their hardearned savings.’
And yesterday Dr Ros Altmann, the Government’s champion for older workers, warned that people who withdraw their cash could be hit with a ‘triple tax whammy’ – on their withdrawal, on any new investment and because the money no longer had tax-free status. She urged caution, and said that right now she would advise pensioners to ‘do nothing’.
The new reforms will allow 2.1million over-55s to withdraw all or part of their funds rather than being required to buy an annuity.
Studies show many will use at least part of their money to go on holiday, pay off debts, renovate their homes or help their family financially.
However it could take time for people to get their hands on their pension pot. While all firms must allow people to take their entire lump sum, many will not allow partial withdrawals. This means many customers will have to switch companies, incurring exit fees and involving time-consuming paperwork. Michelle Cracknell, of the Pensions Advisory Service, said she would advise pensioners ‘not to book the cruise right now’.