I’m a libertarian at heart. For me that means taking personal responsibility and being treated like a grown up and allowed access to my money.
The pension freedom rules were introduced in 2015 and they were right up my alley – they are a very good thing indeed. Unfortunately, HMRC and the FCA had to involve themselves and add certain complications and rules making it a minefield for the average Joe who then finds themselves locked out.
This sort of behaviour is too typical for words. If someone has £40,000 in a pension pot and wants to blow the lot on a great holiday and a new car who are we to deny them and reduce them to receiving peanuts each month instead?
Thankfully this does not seem to be widespread – the people have spoken and they love freedom! Recent figures show withdrawals in the 2017-18 year were worth £6.7bn, the highest figure since the pension freedoms reforms were introduced.
Before the change in legislation, the majority of pensioners would purchase an annuity with their pension pot, which would guarantee them an income for life.
The pension freedoms now mean that those over the age of 55 have access to their savings and more choice and flexibility over how they fund their retirement.
Clearly pensioners are beginning to embrace this opportunity, with a total of 220,000 making half a million withdrawals between them in the first quarter of 2018. That’s an increase of 20,000 from the previous quarter.
Initially, there had been concern over isolated examples of pensioners blowing their entire savings on luxury goods and services, but responsible and widespread use of the reforms is now underway.
It’s true that although savers have more freedom and flexibility as a result of the reforms, it does mean they also have greater responsibility.
This means that it’s more crucial than ever to follow sound financial advice – but the threshold for this is far too low.
Samantha Seaton of Moneyhub, the budgeting app, shares this view stating, “While this flexibility is being embraced, it has also brought into sharp focus the importance of financial advice. But as customers find their finances increasingly fragmented across multiple providers, it can often be a real challenge for advisers to get a true picture of their clients’ financial situation.”
Research has shown that some savers lack the knowledge to enable them to make the right decisions regarding their pension pot. Policymakers and the wider financial sector are now working to address this.
If you have any questions around this topic, please feel free to get in touch with us directly.