Pension Freedoms bring choice but also risk
Ian Price, divisional director at St. James‘s Place, comments on the new ‘pension freedoms’, highlighting that the UK remains seriously underprepared for retirement:
“Pension freedoms bring choice but also risk. The lack of understanding around the tax implications of withdrawing lump sums, is a potentially serious issue. There is a great deal that needs to be done to help those approaching retirement understand not only their choices, but the personal implications of those choices throughout their retirement years.
“Pension freedoms, will have no effect on what is inside people‘s pension pots and whether this is sufficient for a comfortable retirement. If people have not saved enough then, quite simply, the freedom to take benefits is of little material value.
“When people think about their pensions, they are not always realistic, and their expectations of how much money they will have in retirement are not matched by the actual amounts they are saving. The average expectation of the amount they expect to retire on has risen to £42,000 a year.
“With the pension lifetime allowance falling to £1 million, someone retiring at 60 wanting to buy an inflation-protected annuity continuing to a spouse would be lucky to get a private pension of £24,000. Even including the State Pension, this would only produce a total of around £31,000. So unless individuals also have substantial non-pension savings or defined benefit pensions, the average expectation of £42,000 is just unrealistic as it’s more than the government will allow.
“Consumers need to plan in order to avoid the risk of a shock tax bill or a poorer life after retirement.”