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6 April 2016 marks 12 months since the introduction of pension freedom reforms
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15% of the working population are saving more into their pension as a direct result of pension freedoms
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Less than 1% are using their pension savings to invest in buy-to-let property
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Over 55s accessing freedoms to pay off debt
The research also highlights a change, as the pension freedoms intended, for those at retirement. Nearly a fifth (18%) of those aged 55 - 65 have taken advantage of the new rules, and accessed their pension savings in a way which was not possible before April 2015.
A tenth (11%) of those aged 55 - 65 have taken part of their pension as a lump sum and just 5% have withdrawn their entire savings pot. The average amount over 55s are cashing in is just £13,842[2], calming initial fears that the pension freedoms would create a reckless ‘Lamborghini’ generation. Additionally, over four fifths (82%) of those aged 55 - 65 are not planning on taking any of their pension savings just now, highlighting that many are taking a longer view on their retirement income. This is supported by the recent ABI figures[3] which suggest a slowdown in the original “dash for cash” that was observed in the six months post pension freedoms.
The most common reason for over 55s to withdraw a lump sum from their pots is to settle debts. Almost one third (30%) of those cashing in have used the money to pay off debts, which is perhaps not surprising given people generally prefer to be debt free before entering retirement.
Following this, 22% of the UK’s 55 – 65 year olds are taking out cash to put in a cash ISA and the same proportion (22%) are putting the money into their existing bank accounts. Just over a sixth (15%) have invested the money into a stocks and shares ISA and a further 13% have spent the money on home improvements. Less than 1% are using their pension savings to invest in buy-to-let property.
Kate Smith, head of pensions at Aegon UK said: “To see 6.2 million people saving more into their retirement pot in the last 12 months is very encouraging news. Although the initial focus of the freedoms was to create individual’s choice and control for those at retirement, these are positive signs that the latest pension reform has had a broader impact in encouraging better savings behaviour amongst younger and older generations alike.
“In addition to this, there are positive signs that the freedoms are being used responsibly by those at retirement. Despite the initial scaremongering, the majority of people aren’t withdrawing vast sums of money to embark on a huge spending spree. Although concern exists about pension freedoms prompting over 55s to fund buy-to-let investments, less than 1% are choosing this option.
With the government looking to tighten up lending rules over fears that retirees risk their retirement income in the event of a property crash, this choice is looking increasingly less attractive.
“Over 55s must continue to be smart with their money, cash ISAs and bank accounts are unlikely to provide the best returns in the current climate. Retirement could well last 20 or 30 years, so it’s vital that people are helped to make choices that will give them a sustainable income to give them the retirement they want, for as long as they need.”
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