Four in f ive savers who cash in pensions haven’t reached 65
MOST lump- sum pension withdrawals have been by under-65s, figures reveal.
Four in five cash lump sums were paid to those under the traditional retirement age, with three in five under 60.
The Association of British Insurers, which represents most pension providers, said 95 per cent of cash sums withdrawn were for the full amount of pension pots.
Almost £2.5billion has been taken from pension pots since the freedoms came into effect in April, allowing over-55s to withdraw pensions as a lump sum or use it as a bank account rather than buying an annuity that pays an annual income.
The reforms, announced by the George Osborne in last year’s Budget, were intended to give retirees freedom over accessing pensions but caused concern that some would blow the money and be left with nothing in old age.
The ABI figures, based on the first three months followi ng the changes, showed under-65s were far more likely to take out a lump sum than older savers.
But only two in five income drawdown payments – where sums are taken from the pension pot like a bank account – went to savers under 65.
Although nearly £2.5billion was paid out in cash and income drawdown payments in the first three months of the scheme, the amount of cash withdrawn accounted for less than 1 per cent of pension funds held by over-55s, the ABI said.
The ABI’s Yvonne Braun said tens of thousands had used the freedoms to access their money. She said: ‘The majority of people have only been cashing in relatively small pots which account for a tiny proportion of all the money which could have been released. This shows that on the whole the British public are taking a sensible approach.
‘The changes revolutionised the world of retirement savings, now the country needs to ensure as many people as possible can make the most of t hem. Giving i ndividuals greater power over their pension pots should encourage more people to put money aside for their retirement.’
Alan Higham, of PensionsChamp.com, said many providers would not let people withdraw just the tax-free por- tion of their pot unless they bought an annuity, meaning they felt compelled to take the whole amount as annuity incomes could be poor.
‘It is entirely understandable that people prefer a lump sum of, say, £10,000 to less than £50 a month for life,’ he said. But he warned savers to make sure they had enough income to last their retirement before they spent their lump sum.
A report by regulator the Financial Conduct Authority last week warned many underestimated how long they would live and so were not budgeting enough f or retirement or investing enough.
It also voiced concern consumers were not shopping around for the best deals as they were confused about their options. The FCA said the industry should improve its communication with savers to make the benefits and risks of different schemes clearer.
‘A sensible approach’