Majority of Britons use new rights to cash in pension pots

New figures seem to confirm fears controversial reforms could leave retirees sleepwalking into financial disaster

Fewer than one in five pensioners has taken up the offer of state advice on pensions (Getty)

Two-thirds of Britons accessing their pension pots under new rights have simply chosen to cash them in, according to new figures that appear to confirm fears about the consequences of the Government’s controversial reforms.

The Financial Conduct Authority reported that of the 178,990 people who accessed their pension fund between July and September last year, 120,969 took the whole lot out.

Just 23,385 people – 13 per cent - used the money to buy a traditional annuity, which gives them an income for life. However, some people cashing in their pots may have invested it elsewhere - like in property, or an ISA.

The figures will increase fears that the new pension freedoms introduced last year could leave millions sleepwalking into a financial disaster in retirement.

Pensions are savings schemes designed to provide an income for people when they retire. If people take the cash early – as they are now allowed to – they risk having nothing left to pay for their later years, apart from any state entitlement. At around £155 a week the state pension will be inadaquate for many.

“No-one wants to see retirees run out of income and face debt in later life – but these figures show that many could face this worrying prospect,” warned Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline. She added that it may be an unintended consequence of pension freedoms, but it could have serious ramifications, particularly for those with smaller pension pots.

Gareth James, head of technical resources at AJ Bell, pointed out: “Pensions are designed to provide a long term income in retirement so these figures suggest the pension freedoms might be encouraging the wrong sort of behaviour.”

Most of the full cash withdrawals were for so-called small pots of less than £30,000, so it’s possible that many who withdrew cash simply plan to rely on other pension savings they have when they eventually retire.

There was also bad news today for the government’s much-vaunted Pension Wise service which was set up by the Chancellor to ensure that people understood the implications of any decision to cash-in their retirement savings.

The FCA’s figures revealed that just 17 per cent of people cashing in their pensions took advantage of Pensions Wise. In fact drilling down into government figures revealed that just 8.4 per cent of people have actually had an appointment with Pension Wise with the rest, presumably, simply visiting the official website.

Anyone aged 55 and over choosing to take money from their pension pot is only allowed to take 25 per cent of it tax free. The rest is subject to income tax at their normal rate, which can be disastrous for higher-rate taxpayers who will at a stroke have to hand 40 per cent of three-quarters of their savings to the Treasury.