A record £2.75billion of that was in the three months from July to September 2019 alone – the highest amount in a three-month period since freedoms allowing over-55s to take money out of their pension pots were introduced in 2015. There is currently over £6trillion in private pension savings in the UK so it might be a little too early to start worrying about money leaving the system.
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But these figures from HM Revenue & Customs are raising alarm bells in the industry. The concern is that people could leave themselves poor in old age by taking too much and too quickly.
So are pension savers really blowing retirement funds on sports cars, world cruises and cash gifts to their children?
Andrew Tully, Technical Director at insurance giant Canada Life, said: “People continue to be attracted to stripping cash out of their pensions. This is often before planned retirement ages, and will in many instances be triggering large tax bills.
“It shows the pension freedoms are working, but it also shows an emerging picture of large amounts leaving the system, potentially leaving very little for people to live on.”
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Pension freedoms: The Daily Express has brought readers ‘Your essential guide to pensions’ (Image: GETTY)
The freedoms are good news for pension savers, putting them in control of hard-earned cash by allowing flexible access to pots from the age of 55.
But with this freedom come complicated rules and greater responsibility – because all of the risks sit on the savers’ shoulders.
A key concern is that just one in three people seek professional advice when accessing savings.
Deciding when and what to do with pension pots is one of the biggest financial decisions most of us will ever make, affecting the rest of our lives.
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Making the right decision is vital – it could be the difference between a comfortable retirement or a life of worry and compromises.
Steve Cameron, pensions director at financial services firm Aegon, said: “The pension freedoms have changed the retirement landscape for many individuals enabling a more flexible transition into retirement.
“However, this freedom comes with great responsibility. It is crucial people understand the risks associated with drawing down retirement savings, which need to last a lifetime.”
If you are tempted to dip into your nest egg you need to be aware of the pitfalls and risks, so you don’t end up running out of cash, gifting the tax man more than you need to or being duped by crooks into handing over your lifetime savings.
Today, the Daily Express brings readers The Essential Guide to Pensions – looking at the maze of options, explaining all the changes, helping readers to work out how to maximise chances of securing retirement, and pointing towards expert advice.
Pension: Retirement Living Standards were launched by the PLSA last year (Image: PLSA)
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– The size of your pension savings will determine how flexible you can be and which option may be best for you.
– Taking pension savings at the right time could be the difference between paying no tax on withdrawals, paying the lower rate or pushing yourself into a higher tax bracket.
– Consider the ongoing charges and fees on flexible drawdown products – they are paid however the investment performs (good or bad) and can eat into pots on leaner years.
– When accessing flexibly, you need to keep an eye on the amounts you take to ensure you don’t run out of cash too quickly. But don’t leave yourself short of cash to live of now, by being too cautious.
– Make sure you understand all of your options and the long-term affect each will have on your finances before making any decisions.
– Using an independent financial adviser will cost you money. But that could be easily offset by savings on tax, ensuring your cash lasts the rest of your life. It will also stop you from falling victim to fraudsters.