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Hoarding cash and benefits hit: The realities of pension freedoms


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.



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. This just goes to show why advice in this area is essential and also why in many ways pension freedom is a bad idea. Simply because it allows people to make ill informed reactionary decisions on subjects they do not understand, which will end up costing them and the country (in the long term) significantly.

    I fully understand why George Osborne brought in pension freedoms, but it should never have happened for most people (even though we as advisers benefit from it).

    • Duncan

      I agree with you. I don’t wish to appear a ‘clever clogs’ but in the first week that this woebegone idea was announced I thought (and posted) that it was nothing more than a tax grab and a lousy proposal for the majority of pension savers. Drawdown existed before this with proper controls (triennial reviews and GAD limits) and was mainly for those with decent sized funds (£200k +).

  2. “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.”

    Isn’t that what a pension plan is supposed to do?

  3. Pension freedoms were introduced by the Government to allow people to take their cash and spend it if they want or need to, as many are now duly doing. This was also designed to generate extra tax revenue for the government to help offset a recession and help the economy which it is duly doing, sadly people who are unwilling to take advice as to the best way to access funds duly fall into the tax trap set and in a way deserve what they get! There will always be stupid and careless people in the world who will invariably mess up if left to their own devices which is why advisers exist and are badly needed – we just have to ensure that the current nanny state regime does not try to protect people from their own stupidity by making advisers pay for the mistakes of the uneducated idiots out there who don’t take advice.

  4. Though agreeing with Duncan Gafney’s observations, I have to say that I for one don’t understand why Osborne introduced legislation allowing people to make ill informed reactionary decisions on subjects they do not understand. Surely, set against the financial damage that so many people will bring upon themselves and the weight of evidence that so many people are saving far too little for their retirement, it can’t have been for something as shallow and short term as a tax grab? IMHO, it’s been a grossly irresponsible initiative that should have been opposed by everyone and anyone in the know before its announcement. Maybe it was but Osborne refused to listen.

    • Julian, the tax grab and short term boost to the economy, coupled with people taking it out of pension, putting it on deposit and then getting benefits cut. In simple terms, George’s “job” is exactly why it happened, lets face it, it was a short termist decision, made by a man who knew for 100% certainty, he would not be there, when the do do hit the fan.

      The irony is, that for everyone who could actually afford to access their pension flexibly, without leaving the tax payer in the lurch, could already do so via flexible drawdown.

      And I said this all the moment i saw the proposals, the fact that it gives us as advisers additional clients needing advice is good from a purely selfish perspective, but long term, I’m 99.9% certain this will turn out to be a disastrous decision for the country as a whole.

      But why would George or any other MP care, they will be receiving their very large tax payer funded Final salary benefits.

  5. For very good reasons mainly tinkering by the politicians the public do not understand pensions and the desire to walk away from what quite frankly is a total mess is totally understandable.

  6. Many people are getting out of pensions, because the hopelessly confusing paperwork produced by their providers leaves them anxious, confused and wanting out.

    The inability of Providers to communicate in simple, written English is scandalous.

  7. Please also bear in mind that advisers (in the main) seem to charge usurious fees. The customer is banjaxed because providers won’t deal with them directly. This is further compounded by the fact that some firms won’t allow PCLS and leaving the residue invested. Therefore the customer has to transfer – and is stymied again because advisers charge too much and firms won’t deal with the public directly – even if it appears they know what they are about.
    Then even if they managed to get that far there are further ongoing charges from the adviser and the pension company. (The unwary often pay too much tax). This scheme has rip off written all over it.

    So it would seem that the whole idea and process is weighted against the customer, instead of working for him/her.
    That folks it the epitome of a lousy idea. Pension Freedom should be banned ASAP and some form of special government bond issued to enhance annuity rates.

    As one of the contributors pithily put it – advisers are making hay out of Freedom at the expense of the pensioner.

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