10th April 2015
Concerns that retirees would use new pension freedoms to blow their savings are unfounded, with just 1% planning to spend it having fun.
Changes that were introduced this week give over-55s with a defined contribution pension greater to access to their money, which they can spend, save or invest.
There were fears that retirees would use their pension as a windfall fund and blow the lot on holidays and the now fabled Lamborghini, however, research by PwC showed just 1% of 50 to 75-year-olds plan to ‘treat themselves’ with the cash.
A total of 67% said their most important consideration was using the money to secure an income and 61% said the huge tax bill they could face for stripping their pension was a major consideration.
However, there is a worry that 39% do not see the tax implications as a concern and could left with a large tax bill. Just 25% of retirement savings are tax-free and the rest is taxed as income, just like wages, and retirees could see themselves pushed into the 40% and 45% tax brackets if they take too much at once.
The research also showed 45% of those surveyed would go into drawdown and 32% planned to invest some of their money outside of a pension.
Just 28% of retirees said they would purchase an annuity, which provide a guaranteed income for the rest of your life. The popularity has waned following revelations of poor value policies being sold.
Just over half, 51%, said they would pay for advice and expect to pay an average of £580 for it.
Jonathan Howe of PwC, said: ‘At this early stage, drawdown products have clearly emerged as the preferred option for those looking to secure an income in retirement, but taking the money and investing is also being considered by many.
‘The diversity and complexity of these new options means people are in danger of being caught out by unexpected costs. Despite extensive publicity, over a third of people are not currently considering tax efficiency, and over half are not considering investment risks, when deciding how to manage their pension pot.’