Fidelity reveals what retirees have been doing with their pension cash
Six weeks after the government relaxed the rules on what retirees can do with their pension money, Fidelity Personal Investing has revealed how its customers have been taking advantage of the new freedoms.
It says drawdown is the dominant theme, with 61% of customers calling the firm to ask about investing their pension to extract an income from it.
Despite fears raised by former pensions minister Steve Webb stating that some that people might blow their entire pension pot on a Lamborghini sports car, Fidelity says that just 6% want to cash out their pension in its entirety, with half of them only having small pots.
Almost one in ten customers (7%) are frustrated people with a final salary (also known as a defined benefit or DB) pension, asking how they can benefit from the new pensions freedoms. In reality, the majority of people with a DB scheme are better off remaining in their scheme.
Half of those customers entering drawdown are putting off taking any income, instead relying on the 25% in tax-free cash they can release form their pension deferring their income until a later date.
Much maligned annuities are still on the agenda, Fidelity says, but just as many people want to exit their annuity as purchase one. It said 3% of customers are enquiring about cashing in their annuity, while a further 3% had an interest in purchasing one.
Richard Parkin, head of retirement at Fidelity Worldwide Investment, said calls continue to come in at a "fairly high level". He added: "While the freedoms have made pension saving in the UK more talked about, we are getting a significant amount of queries from people who purely want to transfer into our self-invested personal pension as they cannot access the flexibilities through their existing provider.
"Luckily these people are seeking a legitimate route to get their funds but some people in this situation may fall prey to fraudsters who seem to offer them a quick solution. We would strongly urge any consumer approaching retirement to never be tempted by a cold approach from someone claiming to help them with their pension. If in doubt, you must call Pension Wise [the government's free service] or, alternately, seek help guidance from other qualified experts who can correctly guide you."
The firm also said that one customer wanted to withdraw 25% of their fund and donate it to charity, while many wanted to use pension cash to put in a new kitchen or purchase a holiday home.
Find out everything you need to know about the new pension freedoms and how to plan ahead for the retirement you deserve withthe new issue of How to Retire in Style. The magazine is available to buy now from all leading newsagents, priced at £4.99. It can also be ordered online here for £6 including postage and packing.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.