10% to cash in all their pension savings

News


24 Jul, 2018

10% to cash in all their pension savings
 
Approximately 10 per cent of those who are planning to retire this year will likely withdraw all their pension savings in one lump sum, according to new research from Prudential.

Furthermore, the life insurance firm’s Class of 2018 study has discovered that one in five intend to take out more than the tax-free 25 per cent limit on withdrawals.

The poll’s findings also noted that 71 per cent of respondents said that their motivation for withdrawing the lump sum was to invest in other areas such as property or an investment fund.

Besides using it for investments, holidays were the primary way the money will be spent, according to Prudential. 25 per cent said that they would spend the money on home improvements and another 20 per cent said that they would give the money to family members. Meanwhile, 20 per cent are planning to buy a new car and 18 per cent will be paying off their mortgage.

Prudential’s Stan Russell said that it was concerning that such a high number are considering this course of action: “The risk is even greater for those who are taking all their pension fund in cash," he observed.

"They not only face paying more in tax than they have to but also put their long-term retirement income security at risk."

Since the launch of pension freedom reforms in April 2015, more than 1.1 million people over the age of 55 have taken out about £15.7bn, according to official figures from the Treasury.

Figures show that £2.6bn was raised in tax by these individuals in 2015/16 and 2016/17, with another £1.1bn in the 2017/18 tax year.