With the Treasury revealing that the pension freedoms implemented in April 2015 have raised five times more tax than anticipated, it would appear that Britain's 'baby boomers' are taking full advantage of the new relaxed pension income rules.
Two years from the introduction, research commissioned by us at Age Partnership has revealed that 65pc of over 55's believe the pension reform was one of George Osborne's better ideas with 47pc also stating that they have actively considered accessing their retirement pot through pensions freedoms.
With the initiative raising £1.5 billion in 15/16 and an estimated £1.1 billion for 16/17, HMRC information suggests that those eligible have taken larger amounts out of their pensions than was previously forecast as retirees rush to cash in their savings.
However, it comes as a great relief that very few have taken-up former pension minister Steve Webb's suggestion of buying a Lamborghini. Upon pension freedoms' unveiling, Webb was famously quoted as saying; 'If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.' Thankfully however, fewer than 2pc of the over 55's polled had considered using their pension pot to fund an expensive purchase, such as a supercar.
With much uncertainty around what retirees are doing with their money, nearly three quarters of respondents are wisely hopeful of making it work harder by entering into a drawdown or purchasing an annuity, whilst a further 39pc were more confident in DIY investments.
In addition, just under a third would use the cash injection to pay-off existing debts, which would no doubt lighten financial burdens later down the line; whilst 25pc plan to throw caution to the wind and simply enjoy their twilight years by spending some of it on themselves and life’s luxuries.
As a generation that's widely associated with privilege and affluence, the top ten life’s luxuries for baby boomers consisted of:
1. Global travel - 28pc
2. A new car - 15pc
3.Home improvement - 13pc
4. Private healthcare - 10pc
5. A holiday home - 8pc
6. Hobbies and pastimes - 7pc
7. Treating grandchildren - 6pc
8. Part-time career - 5pc
9. Antique investments - 5pc
10. Cosmetic surgery - 3pc
But Age Partnership warns that with newfound freedom comes greater responsibility not to squander the money needed for later life. Simon Green, head of pension income at Age Partnership, said; 'It's great to see so many retirees reacting positively to the pension freedoms initiative. There's a natural urge to live in the moment, especially when you retire and are encouraged by friends and family to simply enjoy life. Yes that's important, but we'd remind everyone that it's a marathon, not a sprint and to consider all your options before accessing pension freedoms.'
Questioning around the process has revealed some alarming results with a third of respondents stating that they have considered accessing their pension pots but have no idea how they would use the money. In addition to this, over half believe the freedoms act has further complicated pensions in general with a further 22pc confused on where to obtain sound financial advice – despite the creation of Pensionwise. When it came to reinvestment, only 16pc fully understood the difference between an annuity and drawdown and how they would individually benefit them.
Simon, added; ‘before making any decisions about their pension pots we encourage people to fully understand the implications of their decisions. At the time that the pension freedoms were announced we received calls from people who were considering taking the full lump sum from their pension, however once our specialists explained that this could mean paying up to 40pc tax, many people then decided against it.’
‘Our specialists do continue to spend a lot of time myth busting; for example, annuities are currently undergoing a resurgence after falling out of favour when the freedoms were announced and annuity became a dirty word – in reality annuities are a great option for securing long-term peace of mind and they’re the only option that give you a guaranteed income for life. Equally, drawdown became a real buzzword with little knowledge around the risks of running out of money during retirement. In reality, a blended option combining the security of an annuity with the investment potential of drawdown might return the best results, but we'd encourage everyone to get the facts and speak to a specialist or financial advisor before accessing their pension pot.'
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