What we found, Part 3: Using pensions wisely
Our recent survey into how many people planned on cashing in their entire pensions had interesting results. In particular, despite repeated stories in the media that pensions would be emptied to fund luxury items and holidays, only 9% planned on emptying their pot (and that number is likely to decrease when people become aware of the tax they will pay for doing so). Of those 9%, over half want to use the money to clear their debt or mortgage rather than spend it frivolously.
There was one unusual result, though: responses for whether or not they wanted to cash in their fund were almost identical for both men and women, as the following graph shows:
Perhaps less surprisingly, people are much more likely to not want to empty their fund as they get closer to retirement age:
This suggests that an income is important to people as they get closer to withdrawing their pension, further reinforcing the suggestion that pension savers are financially responsible.
This can also be seen in how attitudes change based on current incomes. As earnings increased so did the desire to empty the fund, while a lower income was associated with less interest in cashing in. The only exception to this was those earning over £70,000, but this group is most unsure about what to do:
As we explored in Part 1, the majority of people are keen to do what they think is the best thing with their money, whether it's clearing debts, investing elsewhere or helping their children, which may include house deposits and student loans.
However, being keen to do the best thing with money can lead to poor choices. This is how pension liberation scamstrick people into putting their money into high-risk ventures - the promise of high returns can cloud judgement. Of the people looking to cash in their pensions to invest elsewhere, they are no doubt hoping to secure a better return than from their pensions; the problem is this is very difficult to do, especially as pension contributions benefit from tax relief, and the growth is also tax free. Flexi-access drawdown will even allow withdrawals to be tax free if they remain within the personal allowance. Other investments do not have such privileges - rental income is taxable, for example, and ISAs allow tax-free growth but the contributions are already taxed and ISAs are part of a person's estate, therefore subject to inheritance tax.
It's positive to see so many people wanting to make the most of their money, but the range of options soon to be available mean it is more important than ever to seek regulated advice to be sure that you know what the best options are.
What are you planning to do with your pension fund? Let us know with a comment below.
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