New Citizens Advice research reveals 3 in 10 people using pension freedoms put retirement savings in a bank account.
People accessing their retirement savings are being caught out by unexpected taxes and welfare reductions, reveals research from Citizens Advice.
The new figures reveal that overall 9% of people had unforeseen tax problems- such as tax deductions they weren’t expecting. This rises to 30% among people who took their whole pension pot in one go.
The research also finds that 6% of people using the freedoms faced unexpected issues with their benefits, such a reduction in welfare payments. This is a particular problem for people with lower pension savings. 11% of people with pension pots worth less than £20,000 say they have faced unexpected issues with their benefits.
Of those who experienced tax or benefit problems after using the pension freedoms two thirds (64%) managed to get these resolved and the large majority (87%) said this was easy to do.
The figures are from Citizens Advice’s ‘Life after pension choices’ report which is published today. It shows that the pension freedoms introduced in April 2015 are popular as people feel they can make their retirement savings work for their own circumstances. Over a third (35%) of people using the pension freedoms believe it has directly improved their retirement prospects.
Among those who say they are better off following the introduction of pension freedoms, a majority (77%) say this is because they have more control over their money and half (50%) say the freedoms mean they can make the most of their healthy years in retirement. Just 1 in 20 (5%) of those surveyed say the freedoms have made them worse off.
The new research, based on a poll of over 500 people who have accessed their pension since the freedoms were introduced, also explores what people have done with money they have drawn down from their pension:
Almost three in ten (29%) put it into a bank account.
Nearly three in ten (29%) people use the money to pay for daily living costs.
Just under 1 in 5 (18%) invest the money.
1 in 6 (16%) use the money to pay off debts.
The report highlights that many people using the freedoms to access their pension savings are still in work and in some cases still paying into another pension pot which they have yet to make decisions about.
Earlier this month the Bank of England cut interest rates to an all-time low of 0.25% and just last week Santander announced the interest rate on its popular 123 current account would halve in November.
Chief Executive of Citizens Advice Gillian Guy said:
“The pension freedoms are popular with consumers but some people are experiencing unexpected losses.
“The changes are giving huge numbers of people the choice of how to access their retirement savings, offering them more options about how to use the money to best fit their lives.
“With annuity rates falling, uncertainty around returns on drawdown products and the drop in interest rates many are opting to manage their savings themselves, through bank accounts or investments. Others are taking the opportunity to clear debts which would otherwise hang over their retirement.
“In a minority of cases people are being caught out by unexpected consequences of using the pension freedoms, such a being hit by tax deductions or a cut to their benefits. As people’s pension choices become more complicated government and providers need to continue their work to promote free Pension Wise guidance, ensuring people are fully informed about their options as they move from work into retirement.”
Of those surveyed who expect to use the money they have taken from their pension savings since April 2015 in the non-immediate future, a third (33%) said guidance would help them navigate their choices. A quarter said they’d find product comparison (26%) or financial advice (25%) useful.
To book a face to face Pension Wise appointment in Cumbria, call 01900 68981, we have appointments at locations throughout the County. To book a telephone appointment call 0800 138 3944