The pension freedom regime is certainly living up to its name with over £1.77bn being withdrawn in the last quarter. Figures released by the treasury show a huge increase in figures from previous quarters.
Could this have been the Brexit effect? Were people thinking they’d rather have their money in their own bank accounts than pensions?
Well maybe so, but the more likely answer is the reporting of such withdrawal. This only became compulsory in April, whereas previously it was optional to report the numbers.
The figures state that since April, 256,000 payments were made to 159,000 people. This is in contrast to 121,000 people in the same quarter last year.
The total withdrawal since the introduction of the pension freedoms has now topped £6bn.
The results show that people really did want full access to their pension pots. The change in rules have been embraced and people are taking their money out.
It’s far too early to know exactly if these people are making the right long-term choices however. There could be a case of enjoy now, suffer later happening. I know, from speaking to many people making these decisions, that they would rather have more money now and less in their mid to late 70’s. But is this gun hoe attitude going to backfire?
One thing is evident early on however, there aren’t many pensioners driving around in Lamborghini’s. The likely hood is that people are fancying their chances on other investments such as buy to let properties.
For those who are choosing one of the recommended retirement options, there does seem to be a reluctance to look elsewhere when seeking out the best deal. For years’ people were encouraged to use the open market option when shopping around for an annuity. The difference could have increase annual income by up to 40%.
Under the new reforms, there is evidence this behaviour is happening for those who are looking to use pension drawdown. Either the people are unaware of the potential advantage of saving money on annual fees, or are just overwhelmed by the complexity of drawdown, but they are sticking with their existing pension provider.
Some people are being forced to shop around, only because their existing provider doesn’t have a pension drawdown facility.
It may also be the case that people are worried about moving their lifetime savings due to the ongoing risk of scams. The was highlighted recently in a BBC documentary.
Of course the government is trying to educate those at-retirement through it’s PensionWise service. This provides free guidance on the options available at retirement and highlights potential warning signs from scammers.
PensionWise doesn’t however, provide financial advice. We would always recommend using a suitability qualified financial adviser. We’d also recommend checking they are on the FCA register.