George Osborne may no longer be in charge of the public purse but the former Chancellor of the Exchequer has left a significant legacy to the over fifty-fives. The pension freedoms he introduced prior to his departure have enabled individuals to cash in on their pensions and access a cash lump sum, with HMRC figures suggesting that an average of £11,000 is being withdrawn. Whilst welcomed by many, this is also leading some to question whether some pensioners will run out of money during their lifetime.
These pension reforms have led to an estimated 160,000 people withdrawing around £1.8 billion in the three month period between April and June 2016. This takes the total amount withdrawn to in excess of £6 billion in the sixteen months since Mr Osborne revolutionised the way pensions were paid out.
By giving people the freedom to take a lump sum rather than having to settle for an annuity, pensioners suddenly have a lot more choice as to how to use their nest egg in retirement. Rightly in the eyes of most, this has been welcomed as a positive move that can only serve to benefit those drawing their pensions.
However, caution must be taken; this increased level of freedom could lead to the less savvy saver experiencing financial short falls if they don’t make their money work for them in the long term. This is particularly true given the recent drop in income paid on annuities since Brexit.
Reports indicate that annuity rates have hit a record low and the entire annuity market has shrunk to a fraction of the size in the last two years, dropping from an estimated £12 billion to around £6 billion following the EU referendum.
These dramatic shifts in the world of pensions have increased the importance of pensioners ensuring they get the best deal. Investors shouldn’t be afraid to shop around to find the deal that best suits their personal situation. Luckily, there is no shortage of impartial financial advice available to help those concerned when it comes to the best decisions for their retirement.
If you are unsure as to the best route to take as retirement approaches, we at The Financial Management Centre, with the help of our partners are always ready to help.