Only a quarter (£4.7bn) of the £17.5bn that has been withdrawn from pension savings pots through flexible drawdown is being used to fund day-to-day living, according to new analysis.
Since April 2015, pension savers over the age of 55 have been able to choose to withdraw their savings in cash, buy an annuity or use flexible drawdown to manage their savings over time.
Over-55s have moved a further £3bn of pensions savings into low-yielding bank accounts, £2.9bn has been used to pay off debt, and £1.6bn has been invested in other products, such as ISAs. A further £1.2bn has been used to help children get started in life.
And, while not everyone has used their savings to fund a wild lifestyle, £2.3bn has been used to buy luxury items such as cars and home improvements.
Two of the key challenges associated with flexible drawdown are making sure that pension savings last a lifetime, and ensuring that savers don’t lose out through poor tax planning or lower growth in the value of their savings. Transferring money out of a pension and into a low-yielding bank account, for example, could mean lower rates of growth and tax on withdrawals.
While savers over the age of 55 now have more freedom than ever before when it comes to managing retirement savings, that freedom also means that it’s more complex than ever to ensure they are making the most of their money. If you’re starting to plan your retirement, speak to your Brunsdon Financial Adviser who can help you to understand the choices available from age 55 onwards, and how you can use those choices effectively to build the best possible, tax-efficient retirement fund.
Please note that this information is for guidance only and does not constitute personal advice. Any information provided in this article regarding tax treatment or legislation is based on our understanding of current UK legislation law, tax law and HM Revenue and Customs practice (July 2018), all of which may be subject to change and your individual circumstances may impact on these.
The FCA does not regulate tax advice.
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