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People Cash-in Smaller Amounts on their Pensions

pension-reform-updateLeaving more invested

When Pensions reformed in April 2015, pensioners were cashing in on average, £20k. Now, 18 months later, there is a rising number of retirees using the flexible pensions, but they are cashing-in smaller amounts. Was it over-excitement last year at the prospect of available money? Or are people getting wary about their financial future?

This article does not constitute advice.
Professional advice should be taken prior to acting on any part of it.

A change in tact

In April 2015 the pension rules changed allowing more flexibility for pension holders to access their money. This was part of a Reform to encourage pension savings with the promise of access to the fund sooner than on retirement.

Changes included:

  • Pension holders over 55 can withdraw funds from their pension, in it’s entirety if they choose, if it is a defined contribution scheme (DCS)
  • There is a tax-free withdrawal amount available of 25%
  • Further withdrawals are subject to income tax

Last year, when the pension scheme was reformed, pension holders were reported, on average, to be withdrawing £20,000 from their pension funds.

This year, according to the tax authorities, whilst the number of withdrawals continues to rise, people are taking-out smaller amounts, closer to £10,000.

So is everyone becoming more cautious? Perhaps it would seem so.

The most popular reason for withdrawals

Previous research, by the Pensions and Lifetime Savings Associations (PLSA) showed the most popular use of the withdrawal of pension funds, is home improvements.

“The good news is that there is very little evidence of reckless spending or stripping of pension pots,” PLSA

Around £7.6billion has been withdrawn since the Reform, according to HMRC. Their figures show that almost 160,000 people have accessed their pension pots in the last three months, drawing £1.54 billion for their personal use.

“These figures prove that allowing people to do what they want with their hard-earned savings, whether it’s buying an annuity or taking a cash lump sum, is the right thing to do.” Simon Kirby, economic secretary to the Treasury

Take advice when drawing from your pension

If you have a DCS pension scheme and are considering withdrawal, it is important to take advice to ensure all angles have been covered.

Pension Wise, a free helpline set up to help answer questions and give advice on pension withdrawal, reported that only 1 in 5 people who withdrew money from their pension, took advice in advance.

“This research from the PLSA is pretty compelling evidence that millions of retirees simply aren’t seeking financial advice or using guidance services,” Otto Thoresen, chairman of the National Employment Savings Trust.

Taking advice by a financial adviser, or through Pension Wise will ensure that you are making the best decision for your fund, and your financial future.

Need help with your pension planning? Speak to Darren

DarrenRetirement planning for doctors and dentists is essential and this includes carefully choosing your options regarding your pension. Please contact Darren for a free, no obligation appraisal.
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