18th May 2015
Prior to last month’s pension system overhaul which gave retirees unrestricted access to their nest-eggs from the age of 55, many predicted it would lead to an avalanche of savers stripping out their cash in one go.
But retirement income specialist My Pension Expert has found the reality to be very different. In fact, since the arrival of the new freedoms just 1% of its customers have opted to take out all their pension fund in one go, the majority of which being those with smaller pots.
It asserted that there are a number of reasons why this figure has been so low.
It explained that firstly a large proportion of those that are considering a whole fund withdrawal are put off once they are made fully aware of the tax implications. Any income taken from a pension is taxed as earned income, in some cases this could see almost half of a fund wiped out by a single tax bill should it be removed as a lump sum.
As a result this has seen an increase in the popularity of drawdown products, which enables savers to vary the amount of money they withdraw each year, potentially limiting the level of taxation they face in the process.
It added that another issue that is influencing people’s decisions are the longevity risks that are involved in taking the cash out in full. With people on average living longer than ever, retirees are jeopardising their future standard of living by withdrawing their pension without having a consistent source of income in place.
Scott Mullen director at My Pension Expert said: “We’re yet to see the flood of retirees stripping out their pensions that some predicted would be the case once the pension freedoms came into effect. In my opinion I don’t believe that it will ever come, as the majority of customers that we’ve dealt with so far have been turned off the idea once they’ve been aware of the tax and longevity implications.
“Also a large proportion of the customers that we deal with on daily basis have saved responsibly for the majority of their working lives, so the idea that they would suddenly become reckless with their retirement funds is misplaced in my experience.”