It’s been over a year since the new pension freedoms were introduced, allowing over 55s to release up to 100% of their pension pot to spend as they wish. So far the pension freedom changes have released an estimated £3.5BN into the economy.
Announced by the Chancellor George Osborne in last year’s budget, the pension freedoms allow people aged over 55 to release funds from their pension without being required to buy an annuity. Generally, 25% of your pension pot can be released tax free, although you are free to release the entirety of it.
According to figures released by insurers, pension savers have been taking out around £27m a day, a figure which far exceeds those predicted by politicians. HMRC has revealed that 188,000 savers have released around £18,600 on average from their pension pots.
So what have we done with this money? According to The Telegraph, those in the 55-59 age group:
- Only 16% of those who have accessed their pensions have purchased an annuity which guarantees an income for life.
- 40% have used drawdown, where their pension pot is left invested and income is taken.
- 44% decided to take lump sums.
Out of all age groups, annuities were most popular with those aged 65-69.
Many of those who access their pension pot early chose to invest their money. According to Hargreaves Lansdown, the most purchased funds are UK income funds, the most popular of which was Artemis Income. The Artemis Income Fund lost 1.74% over the 12 months prior to January 31st 2016.
As pundits warned there has been a material increase in unregulated companies and individuals offering free pension reviews. The motives of some of these organisations are less than legitimate.
BBC’s Panorama program recently explored this new phenomenon. The episode can be watched here.
Bev Budsworth, managing director of The Debt Advisor comments: “We have sadly encountered a case where a couple was conned out of their entire pension pot. They were persuaded that their pension funds would be invested in “green projects”. They also persuaded friends to invest their pensions and both families have lost significant sums.
When it comes to your pension, you must take caution. When looking to reinvest or move your pension, we recommend dealing with well-established practices authorised by The Financial Conduct Authority. If in doubt please check the FCA Register to see that the pension advisor is regulated by the FCA. ”
Bev Budsworth also adds “If you are struggling with debt issues and you are heading towards retirement, it’s vital you take appropriate advice. There has been a recent case which has successfully argued that pension pots are not “assets” that form part of a debtor’s estate. There are solutions such as an IVA which can allow payments to be made over a set period of time and an IVA can potentially protect your beneficial interest in your property. “
If you are struggling with debt, please give our team a call on 0800 0851 825 or use our contact form. Our advisors can speak with you about all available debt solutions such as Debt Management, IVAs, Bankruptcy and Debt Consolidation.
All debt solutions need to be carefully considered. IVA’s are formal solutions and failure to keep to the terms can result in your IVA failing and you could end up bankrupt.
There is also free debt help and advice available through a variety of debt charities. For more information, we recommend you visit www.moneyadviceservice.org.uk.