Don’t raid the pension pot too early
IT MIGHT BE TEMPTING TO ACCESS THE CASH NOW, BUT TRICIA PHILLIPS URGES US TO FIRST CONSIDER OUR FUTURE NEEDS
GETTING their hands on pension savings early has proved to be a mistake for hundreds of thousands of people. It’s two years since new freedoms gave people aged 55 and over more flexible access to their pension savings – and since then over one million have dipped into their pots.
But more than 150,000 of them feel they made a mistake in the way they chose to take their cash.
Research from investment firm Fidelity shows that more than a quarter reckon if they had drawn up a financial plan they would have made a better decision over their savings.
Other regrets include opting to buy an annuity (lifetime income), spending too much too quickly, and not seeking financial advice. One in five wish they hadn’t taken a tax-free lump sum.
Richard Parkin, head of pensions policy at Fidelity International, says: “Pension freedom was all about giving people the choice to use their retirement savings in the way that was best for them.
“It seems that most people have made decisions that they’re happy with. But, inevitably, faced with some complex choices, some are regretting what they’ve done.
“It may well be that some of those who are happy with the decision today come to regret it later in life when their circumstances change.”
Human nature means that we naturally tend to put more value on what we can have today over what we might have in the future, even when that’s not in our financial interest.
Richard adds: “When faced with the need for cash today it’s too easy to ignore the impact that dipping into pension savings might have on future income. That’s why having a financial plan for your retirement is essential.”
The pension freedoms are good news for savers – they put them in control of their cash.
But with increased flexibility and extra choice comes complexity and confusion that makes it much easier for people to go for what seems like the easiest option.
It takes a lifetime of graft to build up a pension pot, so making good decisions is of huge importance.