Pension providers have been inundated with phone calls following the new pension freedom reforms.
The changes which took effect on April 6th means that savers who have a defined contribution pension and are over the age of 55 are now able to dip into their pension pot as they see fit, without having to purchase an annuity which would offer a guaranteed income for the whole of their retirement.
They can spend, save, reinvest, take a drawdown policy or buy an annuity with their pension pot, and can even use it as a bank account to dip in and out of whenever they want.
However, it seems that many savers are still unsure of how the changes affect them, and are uncertain about how to proceed to ensure the best retirement income.
According to the Association of British Insurers (ABI) almost 230,000 people telephoned their pension provider in the first four days of the changes becoming live. In addition, a further 10,000 either wrote or emailed their pension firm.
Most calls were from clients who were unsure of what to do with their pension pot and were seeking advice for the best way forward.
Some pension companies have reported that some of their customers have already dipped into their pension pots. With some taking large cash sums to spend on either luxury items or home improvements, holidays, new kitchens, cars and even speedboats are being purchased with the nest eggs.
The Government’s own independent advice service, Pension Wise, is now up and running and offers free impartial advice to those who are uncertain about the new changes.
You can either call 030 0330 1001 and book a 45 minute slot or use their online facility to have questions answered. The service only offers an overall look at the changes and Pension Wise cannot give individuals advice about what to do with their pension pot or suggest how to invest any money.
The ABI has its own advice to those affected by the freedom reforms, it says that people need to be aware of the tax implications of taking out large sums of money from their pension pots, and that as well as potentially paying a higher tax bracket, a large withdrawal could mean paying emergency tax.
The industry body stresses that pension savers need to read the small print of their policies, and ensure that they don’t lose guarantees attached to their pension that would become null and void if they cashed in some or all of their pot, such as guaranteed annuity rates that are much higher than the current market rates.
The ABI also suggests that even if a saver has made a decision about their pension pot, they take up the free advice given from Pension Wise to be sure they are fully aware of all of their options.