Over-55s take £1bn from pensions in first two months of freedoms
Over-55s have withdrawn £1 billion from their pension pots in the first two months since the new pension freedoms came into effect.
The chancellor George Osborne revealed in the House of Commons that 60,000 individual investors had withdrawn an average of £17,000 each under the new pension regime. As of April this year, pension savers aged 55 or over can draw from their pension pots as and when they please.
This is only the first glimpse of investor behaviour under the new freedoms, and in his brief comments Osborne did not elaborate upon the spread withdrawals, the size of pots tapped, whether people opted for a lump sum or regular income-style withdrawals, or what age people tended to be when they accessed their savings.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says: 'Whilst the number of people taking money from their pensions has not significantly increased, the way they are doing so has, with fewer than one in 10 people currently choosing to buy an annuity, compared to eight or nine in 10 only a couple of years ago.'
Some companies have voiced misgivings about the new freedoms, worried that people could inadvertently fritter away their retirement livelihood and wind up leaning on the state.
Criticisms include the fact that the new freedoms are likely to make things easier for fraudulent investment salespeople and that investors could receive unexpected tax bills, and the risk of final salary scheme members transferring to defined contribution schemes without realising the costs and reduction in security involved.
"The UK has a problem with saving, not spending," says Old Mutual Wealth's Adrian Walker, "so care needs to be taken when deciding how to measure the success of the pension freedoms.
"I would suggest that a more appropriate measure of success will not come for many years, when those people who have withdrawn money from their pensions are still enjoying the retirement they planned and saved many years for."
But others dismiss criticisms coming from a self-interested financial services industry as cynical.
"The victors of pensions freedom are savers," says Liberty Sipp's John Fox. "The changes have been a success for consumers, and for choice. Yet many of the big beasts of the pension world see choice as a threat.
"They've responded by muttering darkly about the consequences of people being free to choose what to do with their hard-earned nest eggs."
Find out everything you need to know about the new pension freedoms and how to plan ahead for the retirement you deserve with the 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.
This article was written for our sister website Money Observer
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
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.