The pensions landscape has undergone a complete overhaul since the introduction of the ‘new’ pension legislation in 2015. However, it hasn’t all been plain sailing. Amid fears that some pension savers are making poor and uninformed choices, MPs on the Work and Pensions Committee have launched a wide-ranging review into the retirement income market.

Scams a major concern

A major concern has been the amount of money lost to pension scams. Police figures show that about £43m has been unwittingly paid over to fraudsters. Bogus investments and pension-liberation scams with extortionate charges are just two examples of how people have been conned into parting with their money.

The Financial Conduct Authority has found that taking cash before the age of 65 is becoming increasingly prevalent, with most choosing to take lump-sums rather than opting for a regular income. The concern here is that these people may be risking their future financial security, could run out of money in later life, and may also face higher-than-necessary tax bills by adopting this approach.

The committee is also looking at ways of encouraging pension savers to take advice before taking decisions on their pension pot, to ensure they get the best value from their savings. Without advice, it can be particularly difficult for those who aren’t used to dealing with the complexities of pension and retirement planning to make the right choices. Many are unaware that they have the right to shop around, and don’t automatically have to take the pension option offered by their current pension provider. When choosing pension drawdown, for instance, it’s particularly important not to take too much cash too soon, as that could mean risking running out of cash later in retirement.

Choices on offer

Those retiring other than with a defined benefit (final salary) pension face several choices. They can choose to keep their pension pot invested and draw cash from it, take a lump sum of cash out of it, or even withdraw the whole lot. They can still purchase an annuity that provides a regular guaranteed payment for life. Each option comes with its own benefits and drawbacks, and there’s also taxation to consider and the need to work out how to make your pension pot last throughout retirement. So, if you would like some in-depth professional advice to help you make the best use of your retirement savings, then please get in touch.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

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