Pension savers warned of risks of transferring funds into cash

1st September 2015


Retirees may be putting their financial wellbeing at risk by using the new pension freedoms to move their pensions into cash, an adviser has warned.

While consumers may be comforted by the idea of holding their savings in cash rather than putting their funds at risk in the investment markets, the impact of inflation means it is not such a safe bet as they might imagine.

Ian Price, divisional director at St. James‘s Place, says: “Much of the talk around the new pension freedoms has focused on being free to get out of your pension, but equally you can have freedom while you’re still in your pension. Rather than consumers seeing it as ‘open season’ for their money, they should think of it as an opportunity to utilise their pension fund in the most advantageous way possible.

“Some people may be cashing in their pensions just because they can, or because they like the idea of having the money on tap in a bank account. For very small pots this is understandable, but for larger pots the impact of tax and, potentially, inflation may be considerable.

“It may be that those withdrawing their pension savings simply lack the confidence in their own financial acumen to make the right decision about how to fund their retirement and that, metaphorically, ‘stashing it under the mattress’ is the safest option. But, by doing just that, they increase the risk of inflation depleting the spending power of their money, or worse still, incurring significant tax charges by reinvesting – and all without actually gaining any additional benefit that is not already available within their pension.”


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