Since the pension rules changed in April 2015 the way people access their pension pots unsurprisingly has changed, but what about your pension pot?
If you have already retired and purchased an annuity then of course you will be enjoying a regular income, but if you haven't retired yet and are planning what to do with your pension pot here are the results of the Financial Conduct Authority's (FCA) findings following the pension rules changes on what people have been doing with there pots.
FCA Retirement Outcomes Review
- Nearly 75% of pension pots have been accessed by people under the age of 65
- Most choose to take a lump sum rather than a regular income
- Of the pots accessed over 50% had been fully withdrawn; these were mostly under the value of £30,000
- More than twice as many pension pots were moved into a "drawdown pension" arrangement rather than an annuity
So what does this all mean?
Well, it could be that people have a distrust of pensions and that's why so many have withdrawn their pension pots and put the money into other savings or investment vehicles
It's probably also true that the majority have taken any form of financial advice which could result in paying more tax or missing out on potential growth opportunities.
For some of course it will be an opportunity to access a large sum of money to use for living expenses, the danger here is that it could result in a lack of income at a later date, although on smaller sums only a small pension income would have been realised.
The FCA are clearly concerned by what's happening here and will continue to gather information to ensure that the pension market is working for the good of all.
They have suggested some potential ideas to help improve how people choose to use their pension pots:
- improve consumers education of their options and the implications of each
- to make shopping around and comparing like for like options easier
- continue to monitor consumer behaviour with a view to introducing checks, especially where advice isn't given
- to build on the tools and information provided by the governments website Pension Wise
The choices you make with your pension pot could determine the standard of living that you have in later life and as you approach this important life stage you should consider all of the options available.
In addition to the government's Pension Wise and the Pension Advisory Service websites, we have created a jargon free pension section to get you started, just click on the link here.
If in doubt you should always seek financial advice.
Your pension pot choices
See our helpful guide