We are the voice of insurance and long-term savings | Contact us

Savers focus on releasing cash in the first week of the pension freedoms

The first week of the new pension freedoms has seen busy but manageable levels of enquiries coming into providers, the Association of British Insurers (ABI) said today.

Early feedback from ABI members confirms there is a lot of focus from savers on how to release cash from their pensions but many are also exploring other options.

Providers’ experiences in the first few days have underlined that, for customers wanting to take cash, there are three important points they should consider to help them make an informed decision:

  • PENSION WISE. Even if customers think they’ve made up their minds about releasing cash, it’s still important they speak to Pension Wise and their provider to make sure they understand all the implications. People should be sure they will have enough money for their retirement if they cash in their pension now.
  • TAX. Savers turning their entire pension pot into cash could face a sizeable tax bill, reducing the amount of money available to them. Customers using UFPLS to release several lump sums should expect to see emergency tax imposed on these payments, which they will then need to reclaim from HMRC. The tax system works by taking tax up front and correcting any over-payments later.
  • VALUABLE PENSION BENEFITS. Customers with a valuable guarantee in their pension, such as a Guaranteed Annuity Rate (GAR), are required by the Government to take financial advice before they can transfer or take cash, if these safeguarded benefits are worth £30,000 or more. This is to ensure they are aware of the value of this option before deciding whether to give it up.

Huw Evans, Director General at the ABI, said:

"As expected, lots of customers are talking to their pension companies about taking out cash but providers are also seeing plenty looking at wider options. Many savers recognise this is the start of a new pensions era and are exploring how they can most benefit. There is no pressure to make hasty decisions to access a pension.

"Staff at pension companies are rightly taking their time to explain the options to individual savers. Even people who feel they have already made a decision about what to do with their pension should speak to Pension Wise before taking any action. Your pension will only be there to spend once and you cannot be too careful with savings you have spent a lifetime building up."

Last updated 01/07/2016