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OPINION

200,000 investors to cash in pensions next year

200,000 investors to cash in pensions next year
October 30, 2014
200,000 investors to cash in pensions next year

The research by Ipsos Mori for Hargreaves Lansdown also reveals that many pension investors are confused about the tax implications of using the new pension freedom to draw down their pension as they like.

Separate research by Partnership Insurance shows that investors are underestimating how long they will live post-retirement. A survey of those aged 45-plus by the insurer showed the average person believed they would live for another 16 years if they retired at age 65. However, statistics show on average a 65-year-old man will survive another 18.3 years and women of the same age will live a further 21 years.

The combined picture looks worrying. Many people will take advantage of the new freedoms, pay more tax than they expect and then run out of money before they die.

Many of the spending plans identified by the Ipsos Mori research below look sensible, but not if they exhaust the pension pot completely in the early years. It does make sense to spend a little more on enjoying yourself at the start of your retirement when you still have your health. However, you also need to make sure that you have enough left to sustain your quieter mid-retirement years and some potential bigger bills relating to healthcare at the end of life. This normal U-shape pattern to retirement income spending is not easy to plan for because everyone's U-shape will be different.

 

What do you plan to do with your pension pot?

Use it to live on: 22 per cent

Holiday: 21 per cent

Pay off debts: 13 per cent

DIY: 12 per cent

Reinvest in property: 16 per cent

Source: Ipsos Mori, October 2014

 

Surprisingly, investors are unlikely to seek advice on their retirement options - even if it is free. As part of the planned reforms the government is introducing free guidance to help investors with their retirement decisions. However, in a recent pilot study by insurer Legal & General, just 2.5 per cent of investors took up the offer of free retirement guidance. The L&G pilot was launched in conjunction with The Pensions Advisory Service and LEBC between April and May and contacted 9,000 individuals coming up to retirement. Just 225 savers opted to receive free pensions guidance after receiving a letter.