A worrying number of consumers are using pension freedoms to transfer their pension pot into their bank account, research suggests.
Citizens Advice, which provides the face-to-face guidance service through Pension Wise, has published a research report today examining consumers’ experience of pension freedoms.
It has based its findings on a survey of 500 savers over 55 years old who have accessed their pension since April 2015, alongside 20 in-depth interviews.
It found that 29 per cent of those surveyed are putting their pension funds in a savings account. For those with pots worth over £100,000, the proportion rises to around a third who are moving pensions into cash.
Consumers said this was about trusting in bank accounts, the lack of fees and easy access to their money.
One interviewed saver said: “I’ve put my money in a savings account which I realise an adviser might not say is the best thing to do.
“I get about 1 per cent on the current account but I’m not paying a management charge on that. My focus was to keep it safe.”
Retirees are also accessing their pension to spend the money on daily living costs, with a further 29 per cent looking to use their pension in this way.
Over one in five plan to spend their pension on luxury goods, while 16 per cent plan to use their pension to pay off debt. Some 18 per cent of respondents said they were accessing their pension to invest the money elsewhere.
The research also found that while most consumers understood the implications understood how their money would be taxed, there were some savers who were caught off guard.
Some 9 per cent of respondents said they had unforeseen issues with tax. Among those polled who took their pension pot in one go, 30 per cent were hit with unexpected tax issues.
A further 6 per cent said they had unexpected problems related to benefits, such as a reduction in benefits or losing eligibility for welfare payments entirely.
The report says: “The FCA should review whether warnings are being targeted well enough.
“Consumers accessing more than their tax-free lump sum should be given or signposted to further tax information, as well as practical details such as around emergency tax codes and how to claim rebates.”
Citizens Advice also found that consumers go on to make enquiries about dealing with benefits and tax credits and debt advice after an initial Pension Wise session.
It recommends the Government should help consumers to get guidance and advice after initial pension choices.
It would like to see the Government promote second Pension Wise appointments and generally build greater flexibility into the service.