A Sheffield financial planner is warning that pensions’ freedoms could lead to a retirement time-bomb.
Jillian Thomas’ warning comes after new figures* from the Financial Conduct Authority show that more than 200,000 people have accessed their pension pots, with over a third taking out all of the cash.
In total, nearly £2.5bn of payments were made to savers in April, May and June, the first three months after the new pension rules were introduced, according to the Association of British Insurers (ABI). The sum equates to £27m of payments each day.
The pension freedoms mean that instead of being required to buy an annuity with their pension pot, people aged 55 and over have more flexibility to take the money how they wish. An annuity guaranteed a fixed income for the rest of someone’s life.
Jillian, who is managing director of Future Life Wealth Management, said:
I have a genuine concern over what is happening over pensions’ freedoms. We have seen literally billions being taken out in just a few months.
What worries me is that some people are using this money to buy new cars or go on a cruise and then what happens when they are older and need to pay for heating and food?
This is particularly important to bear in mind because the Department for Work and Pensions issued a Deprivation of Assets clause in the new pension freedoms’ legislation. This basically means that by taking pension benefits early for non-pensions’ related activity, state benefits in the future could be restricted or not paid at all.
The ABI figures show that of the £2.5bn taken out, £1.3bn was paid out in cash lump sums, with an average payment size of just under £15,000.
Jillian, who is due to become president of Sheffield Chamber of Commerce and Industry later this year, said:
Rather than rushing to cash in your pension pot to fund some nice treat, people really need to plan for retirement.
Whether you plan it properly or not can mean the difference between retirement being the longest holiday of your life or the worst period of unemployment.
Future Life Wealth Management, which is based in Renishaw, offers a bespoke financial planning service to generators and receivers of wealth, including business owners, executives, inheritors and retirees.
The company was named among the top 100 financial advisers in the country in 2013 and 2014 by The New Model Adviser, which recognises firms for their qualifications, income and commitment.