25% of retirees return to daily job
WHY ARE SO MANY PEOPLE STRUGGLING? The problem is it’s now too easy to access retirement savings, and from age 55, which means people dip in too early and too quickly, leaving not enough cash to last the rest of their lives.
WHY’S THIS HAPPENED? In 2015, the Government introduced freedoms to put people in control of their pension pots. But too many people are taking advantage of this new flexibility without knowing all the pitfalls.
Some end up paying more tax than they need to by taking out large sums. Only the first 25% is tax free.
Others are choosing financial products they don’t understand, such as taking cash in chunks via drawdown, which leaves money at the mercy of financial markets. There are often hefty charges for these funds.
AREN’T ALL CHARGES THE SAME?
No, they can vary vastly. If charges are more than 0.75% of your pot you could be paying too much.
WHAT CAN BE DONE? Everyone should get professional advice before taking cash from pensions. A QUARTER of retired people have been forced back to work because they are struggling to make ends meet, according to a survey.
Some who dipped into pension pots under new rules introduced in 2015 are finding it hard to make their cash last.
Under the pension freedoms savers can take out a 25% tax-free lump sum and withdraw money flexibly.
And HMRC figures show over half-amillion over-55s withdrew £8.1billion in the past tax year – a 23% jump on 2017.
But poor financial planning is forcing some back to the “grindstone” to avoid “an impoverished old age”, experts say.
The new rules give people control over how and when they spend their hard-earned pension pots.
While many people aren’t blowing cash on luxuries, experts warn some make risky investments or withdraw cash too quickly, raising the danger of running out of funds. Andrew Tully, of investment firm Canada Life, said: “Pension freedom transferred all of the risks around retirement on to the consumer and with that comes much greater responsibility.
“The risk of running out of money is very real, as there are no mechanisms to prevent people depleting pots too quickly. Without the right financial advice, most will not achieve the best outcome in retirement.”
The survey by Zurich found nearly two-thirds of people did not get specialist help before taking cash out. And Alistair Wilson from the firm said: “People now face more complicated decisions in retirement – including where to invest and how much to withdraw.
“Pensioners who don’t plan for retirement and get advice could face a return to the grindstone or an impoverished old age.” It comes after a report from Age UK, based on interviews with industry insiders, raised fears pension freedoms ANDREW TULLY OF CANADA LIFE ON WHY NEW RULES HAVE HIT SOME HARD John and Marion could fuel a new financial scandal. Key concerns included people paying too much tax, giving up valuable guarantees and running out of money.
It said around 18,000 people may be raiding pension pots each year, without knowing they were entitled to benefits.
A further 150,000 are paying £40-£50million a year in unnecessary charges, the report claimed.
Caroline Abrahams, from the charity, said: “It’s heartbreaking so many people are unable to afford a decent lifestyle after retiring because they weren’t able to get the best deal from their pension.”
“There’s no doubt pension freedoms have been popular and are working well for some people, but clearly there are many others who are floundering.
“It must be really hard, physically and emotionally, for people enjoying their retirement to have to go and find work.”
Pension freedom transferred all the risks around retirement on to the consumer