26 Mar 2018 New research1 from Retirement Advantage sheds light on how consumers have reacted to the pension freedoms, and reveals one in five (19%) people have withdrawn cash from a sense of concern over the regulations changing. 43% of those polled who had used the freedoms to take some cash felt it was nice to have a bit extra to spend, while 36% said they needed the money.
Reasons for using the freedoms to withdraw cash include:
– 29% put the money in a savings account
– 25% used the money for home improvements
– 18% paid off non mortgage debt
– 17% went on holiday
– 14% paid themselves a regular income
– 12% bought a new car
– 11% paid off the mortgage
– 8% gifted some money to children
– 6% helped family members onto the property ladder
– 2% gave a gift to grandchildren
Andrew Tully, pensions technical director, Retirement Advantage commented: ‘A picture is emerging of significant taxable cash sums being withdrawn under the pension freedom rules, driven by desire and necessity.
‘More worrying is the significant number of people telling us they are taking the cash because of a concern that the regulations will change in the future. Taking money out of a tax advantaged pensions environment to put the money in a savings account is rarely a great idea. But I can understand why people are concerned about moving goal-posts as pensions have been a political football for many years.’
Recent HMRC data2 shows that £6.54bn was withdrawn in taxable cash payments from pensions last year. That is almost £1bn up on the previous year (£5.69bn in 2016).
Free online calculators are available to help people understand the tax implications of pension withdrawals including: http://www.retirementadvantage.com/pension-tax-calculator
Commenting on the third anniversary of the pension freedoms more generally, Andrew said: ‘The pension freedoms are clearly popular with customers. We are seeing more people flexibly access their pension savings, and often before planned retirement age. DB transfers are also increasingly popular as people look for extra flexibility from their savings.
‘However, with freedom and choice comes a whole new level of complexity to catch out the unwary. Cash is king, and Government coffers continue to benefit from the additional up-front tax take. More people are going it alone with DIY drawdown, rather than seek professional financial advice, while scammers and conmen continue to prey on the market.’
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