Over-55s’ love affair with cash continues despite inflation risk and low interest rates

4 Apr, 2017

Cautious over-55s are putting hard earned pensions at risk by ignoring inflation and placing money in cash, Fidelity International’s Class of 2015 research reveals.

Two years since the pension freedoms began, Fidelity spoke to people who had accessed their pension since April 2015 to see how this group had made use of the new flexibilities; particularly the cash lump sum.

Fidelity found that the Class of 2015 had used their cash lump sum for everything from paying off debt to financing holidays, the most popular choice by far was stashing money away in a current account with over two fifths (41%) choosing this option.

Yet, these actions didn’t seem to tally with concerns as nearly three quarters of those who’d accessed cash and gone into drawdown (73%) went on to say that low interest rates were far and away the biggest worry for their pension monies.

With even market leading accounts only offering a maximum of £122.25 in interest payments for just £2,500 in the first year only the biggest risk is not taking any risk with overly cautious retirees guaranteed to lose out as UK inflation continues its march upwards.


Maike Currie, Investment Director at Fidelity Personal Investing comments:

“Rising inflation and low interest rates is a toxic combination for retirees. Beyond the rise of day-to-day living costs like food and fuel, inflation also wreaks havoc with your pension savings. It erodes the spending power of future interest payments and chips away at your capital.

“It’s concerning that retirees worry about low interest rates but then still choose to leave their hard-earned pension savings languishing in cash. Most soon-to-be retirees look forward to their 25% tax-free cash lump sum with anticipation and excitement, and should enjoy this pension sweetener as they see fit, however, leaving it dwindling in a cash account could leave them short changed in the future.

“Considering that a healthy 55-year old could expect to live for another 30 or 40 years, most retirees can afford to give their tax-free cash sum room to grow by moving further up the risk spectrum, investing in bonds issued by companies rather than the Government or moving into stocks and shares. Putting this money into a stocks and shares ISA will also protect any future income payments and capital growth from the tax man.

“Our calculations show if you had invested £15,000 into the FTSE All Share index five years ago, you would now be left with £23,288. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £15,122. That’s a difference of over £8,166.”