A new record was set for withdrawals under the "pension freedoms" scheme, as 220,000 pensioners made 500,000 withdrawals in the first few months of 2018.
This was an increase in terms of withdrawals of 20,000 from the previous quarter. Total withdrawals of £6.7 billion were taken in the 2017/2018 financial year, the largest figure on record.
In response to the new situation, pensioners are increasingly choosing to use the pension freedoms rules rather than taking an annuity which was the previous most popular option. Annuities offer a guaranteed payment for life in exchange for a lump sum investment but are inflexible.
According to Tom Selby of AJ Bell:
“Three years on from the launch of the pension freedoms we are beginning to get a clearer picture of how savers are using the flexibilities.
“The popularity of the reforms is obvious, with half a million flexible payments made to over 200,000 people in the first three months of 2018.”
The pension freedoms rules require an increased level of responsibility on the part of pensioners who could burn through their savings very quickly.
In order to protect pensioners, the Work and Pensions Committee of MP's has recommended that the Government require providers to move savers in to "default" investment funds, in order to provide a base level of stability close to retirement. However, this may go against the original intention of the rules by reducing access to choice for pensioners.
Samantha Seaton of Moneyhub says:
“While this flexibility is being embraced, it has also brought into sharp focus the importance of financial advice.
“But as customers find their finances increasingly fragmented across multiple providers, it can often be a real challenge for advisers to get a true picture of their clients’ financial situation.”
Tom Selby of AJ Bell says:
“Our research suggests many savers lack knowledge about the decisions they are taking at retirement. This must now become the central focus for both policymakers and the wider retirement income sector.”
Contact Westminster Wealth Management today and one of our skilled advisers can construct a financial plan for you that will enable you to meet your financial goals.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.