Enable’s IFA’s regularly discuss the new pension freedoms with clients and more and more retirement experts are suggesting that the way people are accessing their pension freedoms is “very worrying”.  City regulator figures indicate that 120,969 people who cashed in a pension fund between July and September of 2015 took out all the money and only 58,021 people used the money to buy themselves an income, said the Financial Conduct Authority (FCA).

The FCA figures showed that 13% of people taking money out of their funds bought an annuity between July and September.  However of those who bought and annuity 64% were sticking with their existing provider, rather than shopping around to get the best deal. In this respect, “market competition appears not to be working”, said Tom McPhail. John Perks, managing director of retirement solutions at insurance company LV= described the figures as “extremely worrying”. “This means most retirees are missing out on getting the most from their retirement savings,” he said. In addition many people are failing to take advantage of so-called Guaranteed Annuity Rates (GARs) pensions typically promise to pay out an income of as much as 10% a year of the value of the pot,
but 68% of those who could have qualified for a GAR, had they waited until they were old enough to claim it, did not do so.

Although of those people taking an income from their funds, 84% were taking a yield of less than 4% – considered to be a sensible estimate to stop money running out. However, more than 24,000 took an income worth more than 10% of their savings, a level that is considered unsustainable in the long run.  It is important to remember that taking money from a pension pot after the age of 55 only allows 25% of it to be taken tax free, the rest is subject to income tax.

Source: BBC

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