Pension warning as many Britons unaware of ‘safety net’ which could help in retirement

Pension freedoms reversal ‘would not be popular’ says expert

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Pension savings will be embarked upon by millions of people who are planning towards later life. Whether this be through workplace arrangements, private agreements or both, saving towards a pension can be vital for ensuring income after leaving the workforce. However, recent research has revealed many people are unaware of pension freedom rules, which are a vital consideration in managing one’s money.

Pension freedoms mean people are able to flexibly access their pension from the age of 5, using the funds for a wide range of options, but predominantly cash withdrawal.

People will pay no tax on the first 25 percent withdrawn, but pay tax at their rate on the rest.

Despite the legislation introduced in 2015, research from Fidelity International showed a quarter of people aged 55 to 64 are unaware of the reforms.

The organisation has said this is particularly concerning given Office for National Statistics reports showing over a quarter of furloughed workers were aged 50 or over.

Of course, withdrawing at least some money from a pension can be beneficial to help these individuals in particular gain financial security.

But Britons should always be careful with how much they withdraw in efforts to manage their money. 

Maike Currie, investment director for workplace investing at Fidelity International, commented on the matter.

She said: “The past year has been tough on household finances, and many employers are looking at how they can support their employees’ wellbeing, not just today, but for the future as well.

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“The reality is that the pandemic, many people may have had to reduce their work hours, their savings or the amount they put into pensions.

“This will all have a serious knock-on effect we are coming out of lockdown.

“As a result, those over 55 may be looking to pension freedoms as a safety net.”

This year, close to one million people are set to celebrate their 55th birthday, a major milestone when it comes to pensions. 

However, it is worth noting there will be changes in the future for pension freedoms. 

From 2028 onwards, Britons will have to be 57 in order to access their pension savings. 

It is not yet clear how this will be implemented, but it could either be enacted from a specific date, or phased in over time. 

Regardless, this may change some retirement plans for certain individuals. 

John Glen, the Economic Secretary to the Treasury, stated the change was to reflect “trends in longevity” as well as to encourage people to remain in work.

With increased life expectancy, people will have to make their pension savings last for longer.

An increase to the pension freedoms age, therefore, is likely to help ensure pension savings provide for later life and do not run out. 

However, while pension freedoms have benefits, there are also drawbacks which are important to consider. 

Ms Currie added: “While the advent of pension freedoms has provided flexibility for many and given retirees more control over their later-life savings; it has also increased the chances of those who don’t full grasp the considerations of drawdown running out of income during retirement. 

“Both the benefits and these risks are something that employers should be aware of.”

As a result, then, Ms Currie concluded by stressing the importance of seeking support and advice where possible.

This can be done either through personalised independent financial advice or through other channels.

A new solution known as an Investment Pathway can help individuals who are not receiving any personal recommendation.

Indeed, some individuals may wish to take matters into their own hands using services such as PensionWise or the Money Advice Service to find out more.

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