Can you be trusted with your own pension pot?

ice cream pension 6 Oct

Can you be trusted with your own pension pot?

Are you like a 5-year-old outside a sweet shop with a ten-pound note when it comes to your money? The UK government seems to think so!

But then again let us look as some recent research:

The average person in Britain has a poor understanding of many aspects of personal finance.

We Brits grossly underestimate the cost of big life events such as having children, the cost of further education and retiring.

The average person thinks that it costs just £50,000 to raise a child from birth to leaving home, one study puts the actual figure at £229,000.

Similarly, we think the average debt for a student coming out of university is only £21,000, when the actual average student debt is more than £44,000.

Perhaps most worryingly, the average person thinks they only need to have a pension pot of £124,000 to get an annual income of £25,000 per year, including their state pension. A quick check of any pension calculator shows that is woefully short, and most people will need well over £300,000 (taking receipt of the full state pension with 30 years NI stamps into account).

Brits are “worryingly exposed” to financial shocks, a report from Schroders Personal Wealth has found.

A survey asked 2,000 UK adults how they feel about their financial situation.

This was then rated in four main areas: getting the basics right; managing borrowing; protecting against the unexpected; and planning for the future.

She is not free!!

The surveyed Britons scored only 3 out of 25 when it came to protection against the unexpected, and for planning for the future the rating was only slightly higher, at just 5 out of 25.

Pension Freedoms

The British over-55s have withdrawn more than £30bn from their retirement savings since the introduction of pension freedoms in April 2015, according to the latest statistics from HM Revenue & Customs. Savers withdrew £2.4bn from their pension pots in the third quarter of 2019, an increase of 21 per cent from the equivalent period in 2018.

The number accessing their savings in this quarter was 327,000, HMRC said, a 27 per cent increase on the 258,000 who did so in the same period a year ago. However, the average withdrawal per person has fallen — from £7,600 last year to £7,250 in the third quarter of 2019.

Back in 2015, the hubbub was that investors would start shoveling money out of their pension and not think about the consequences. But the reaction to the COVID crisis suggests that lots of people understand the associated risks. Investors are taking more responsibility for their retirement and thinking ahead to the future.

However, it’s one thing to choose a flexible retirement option knowing the risks, and it’s another to experience them first hand. The recent stock market dip would’ve shaken the confidence of lots of pension investors.

If you’re thinking about taking money from your pension, it’s important you get the full picture first and get some expert advice for free.

If you have a defined contribution pension today, things are different. From the age of 55 (rising to 57 in 2028), you normally have the option to keep your pension invested how you choose and withdraw money when you need to? You can even withdraw the whole pension in one go if you want to. Usually up to 25% of the pension is paid free from tax and the rest is taxed as income. All of it if it is under 30,000 GBP

Giving up on secure income brings with it extra risk and responsibility. The fear when these freedoms were introduced was that investors wouldn’t take this seriously and could end up running out of money earlier than planned. But the recent drop in people flexibly accessing their pension might suggest that they’re being more sensible, and perhaps deserve a little more credit.

So, with this information to hand, the Government seems to be putting up many hurdles that counter the pensions freedom act of 2015, making it harder and harder to cash in your pension. Many experts foretelling the end to Pension freedoms.

Are you sure you want to cash in Sir?

It is the responsibility of the Financial Conduct Authority (FCA) to police the industry and protect consumers.

So, it’s no wonder that the regulator has tried to make sure people are using their new freedoms wisely and that firms are only recommending transfer where appropriate.

Putting the £30,000 ($38,704, €32,959) limit in place meant smaller pots could be accessed without advice, which would likely not have much impact on a person’s overall retirement pot.

The balance has got to be your health and your future, and how much time you really feel you have left versus what you have already got in your bucket list.

Doors are closing on Pension Freedoms

All this means if you are 55 years old now, and you are adamant you could do a better job yourself with the cash from your pension and place  in an investment vehicle your uncle Charlie knows about, or a startup or perhaps, maybe you know of a great property that just needs a lick of paint and you can double your cash, well they do on the telly every day eh! Or you can take advice from experts.

But you got too be quicker based on the above research many experts feel this is the prelude to a turnaround on how you can move or cash in your pension.

One really good reason to have a pension review now, is that Jersey has only recently become a jurisdiction available to non-residents. So, if you are 55 years and older and have a QROPs that is currently not getting a good return, or you haven’t seen your Broker for a while, or maybe you want to access 100% of your Pension money ASAP, then you need to speak to us.

Have a coffee with our Bangkok Based financial experts and you will be wiser for it and at the very least make a more informed decision over your future.

**Terms explained!

Pension freedom rules: The rules introduced on 6 April 2015 allowed retirees to take as much out of their defined contribution pensions as they wanted. Before this, most people were restricted as to how much they could take out in one go.

Drawdown: A way that people from age 55 can flexibly access their pensions. For example, drawdown is flexible since you can take out as much as you want. It’s a higher risk option as your income varies depending on the performance of the investments you choose. The first 25% will be tax-free and the rest taxable.

Lump sum payments: A flexible retirement option that lets you reach into your pension and take however much you want as a single cash payment. 25% of the amount will be tax-free and the rest taxable.

Annuity: A retirement option that will pay you a regular income that’s guaranteed for life.