The timing of the event was significant, given that the new pension freedoms announced by the chancellor in March 2014 had just become fully available to many pension savers in the UK. As you will be aware, this rule change allows savers over age 55 to access their pension savings in a variety of formats that were not previously permissible.
The host of the event was the insurer Royal London, and it had taken the opportunity to ask those withdrawing their retirement savings how they were intending to spend the money. The answers, as reported in this article, make for interesting reading:
- 35 per cent will pay off debts
- 22 per cent will use the money to fund home improvements or a new conservatory
- 15 per cent will invest in an alternative arrangement (such as an ISA or property)
- 11 per cent will buy a car or caravan
- 11 per cent will use the money to meet general living expenses
- Six per cent will spend it on a holiday
Admittedly, it is early days (and these figures a very early indicator) and these findings may not be indicative of long-term trends. Yet these figures are surely concerning given that so few of the disinvestments are being used for anything other than short-term financial needs (as opposed to the long-term retirement income they were originally intended for). It is therefore entirely possible that at least some of these individuals will have made snap decisions that may well result in a rather impoverished retirement.
In our view, the above strengthens the need for savers to better understand the true dynamics or retirement savings, and indeed the options now available from age 55 onwards. We would therefore encourage employers to consider whether they have done enough to communicate these changes, and/or offer financial education and guidance to their employees as an important part of the wider benefits offering.