"The big risk to the success of the pension freedoms is not pension money being spent on Lamborghinis; it is pension cash being moved into bank accounts and left to dwindle."
Its figures reveal that overall 9% of people had unforeseen tax problems such as tax deductions they weren’t expecting. This rises to 30% among people who took their whole pension pot in one go.
The research also finds that 6% of people using the freedoms faced unexpected issues with their benefits, such a reduction in welfare payments. This is a particular problem for people with lower pension savings. 11% of people with pension pots worth less than £20,000 say they have faced unexpected issues with their benefits.
Of those who experienced tax or benefit problems after using the pension freedoms two thirds (64%) managed to get these resolved and the large majority (87%) said this was easy to do.
Additionally, almost three in ten (29%) who are accessing their pensions move the money into a bank account, a move widely criticised by pensions experts.
Steve Webb, Director of Policy at Royal London, commented: "The big risk to the success of the pension freedoms is not pension money being spent on Lamborghinis; it is pension cash being moved into bank accounts and left to dwindle. If pension savers are putting their money into a bank account on a temporary basis before reinvesting it, then there is less to worry about. But if they simply leave their money in an account paying little or no interest, they will see its real value decline year-after-year through inflation.
“It is vital that anyone considering taking their money out of their pension pot has access to high quality advice and guidance, which stresses the option of leaving the money invested. Consumers need to be made aware that putting your cash in an account paying very little interest is not a safe option and will mean that you are missing out on the returns you could get if you left your pot invested.”
Chief Executive of Citizens Advice, Gillian Guy, said: “With annuity rates falling, uncertainty around returns on drawdown products and the drop in interest rates many are opting to manage their savings themselves, through bank accounts or investments. Others are taking the opportunity to clear debts which would otherwise hang over their retirement.
“In a minority of cases people are being caught out by unexpected consequences of using the pension freedoms, such a being hit by tax deductions or a cut to their benefits. As people’s pension choices become more complicated government and providers need to continue their work to promote free Pension Wise guidance, ensuring people are fully informed about their options as they move from work into retirement.”
