When he announced his remarkable UK pension reforms in 2014, the then Chancellor George Osbourne said:
“People who have worked hard and saved hard all of their lives, and done the right thing, should be trusted with their own finances”.
And that’s precisely what people now do. People are using their pension freedoms practically, paying off debts, moving into part time work, and topping up income using flexible drawdown. Some have simply retired, while others may continue working and wait before they start drawing down their pension. The need to purchase an annuity to provide an income for life is no longer there, so although there are increased freedoms, how has it affected those retiring?
People are now realising that managing your pension pot when you retire is not all that straightforward.
A recent study showed that 45% of those aged 50 to 75 are worried that their pension pot will simply not last their retirement. Before the reforms, you took you tax free lump sum, and then an income, which was often guaranteed for life for both you and your partner.
So, in view of all these choices, and with the world ever changing, what has it all meant?
Amazingly, close to 40% of upcoming retirees are still unsure when and how to access their ‘pot’, while many retirees who have accessed their tax free lump sum have paid off some kind of debt or mortgage, and 28% of non retirees who are going to take their lump sum, plan to spend it.
What are people doing with their lump sums when they reach retirement?