Pension Cash Drawdowns and the Need for Financial Advice

The Budget announcement that people are to be given more freedom with their pension savings offers consumers new opportunities for their retirement planning. In particular, the ability to withdraw in cash a greater share of the pension pot will enable those at or in retirement to fund one off purchases during the initial retirement years during which it is common for financial pressures to be at their greatest.

For those who invest regularly and/or are making pension contributions into a direct contribution pension fund, the alternative of ISA investing at the newly increased annual limits has become an attractive saving alternative for future retirees as the access to the funds on a tax free basis will also be immediate.

However some caution needs to be applied. With most pension pots averaging less than £50,000*, it is very probable that in many cases the entire fund will be drawn down very quickly. Indeed, this has apparently been the experience with lifetime mortgage flexible plans where there is evidence from providers that the reserve facilities are often fully utilised within only a few years.

There is also the possibility that people will defer entering into equity release plans until their pension pots have been fully withdrawn. The average age of lifetime mortgage and home reversion plan applicants could hence increase. This may or may not be the right decision. However it illustrates the point that increasing choice makes it more important than ever for retirees to seek independent financial advice.

Bower offer this service to those considering equity release as part of their retirement strategy. Irrespective of the greater options now becoming available, most people do not save enough for retirement. Indeed Prudential has recently reported that 14% of those retiring this year will have no pension savings whatsoever. As a consequence, if fortunate enough to be homeowners, many people will continue to rely on their property to provide a financial cushion in later life.

*The Association of British Insurers