Concerns grow as majority cash out pension pots in full
As new pension freedoms are implemented as part of controversial government reforms, figures released by the Financial Conduct Authority reveal that more than two thirds of people across the UK are cashing in pension pots in full, rather than purchasing a traditional annuity.
The data underlines concerns that the new pension freedoms, which allow people to access pension pots early when they reach 55, will lead to shortfalls in income and hardship in later life.
The changes come amidst a wider overhaul in pension policy, with the acceleration of the equalisation of the pension age coming under scrutiny only yesterday in Parliament in a backbench debate led by Mhairi Black MP.
From July to September 2015, 68 per cent of pensions accessed by consumers were fully cashed out.
Referrals to Pension Wise – the advice agency set up by the Government to help consumers make the right decisions on their futures – are also far lower than anticipated with only 17 per cent of people using the service. It was initially anticipated that around 75 per cent of people would take up the offer of guidance via Pension Wise.
Commenting on the release, Yvonne MacDermid, Chief Executive at Money Advice Scotland, said:
“Few decisions are as important to a person’s long-term financial wellbeing as those that we make about our pensions.
“With the increased choice and complexity brought by the new pension freedoms, the need for high quality and impartial advice has never been greater.
“Only 17% of people used Pension Wise and the burden of responsibility remains with the government to work to improve access to this service to ensure that consumers are better equipped to make the right decision about their future.
“From a debt and money advice perspective, we are also worried that people may be encouraged to cash in pension pots early to pay off outstanding debts, without seeking appropriate debt and financial advice. It may be that other options are more suitable.
“A problem deferred is not a problem solved, however, and whilst this option may clear a debt in the short-term, it may lead to other difficulties in later-life.
“More choice can only be a good thing, but with this must come improved advice and education on the possible risks and pitfalls.”
Notes to editors:
Money Advice Scotland recently contributed to the Treasury’s consultation on the future provision of public financial guidance, including advice on pensions.
Financial Conduct Authority, Retirement Income Data, July to September 2015
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