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Security trumps income - but at what cost?

13th May 2014 Print

With the proposed changes to pension rules announced in the budget, Partnership undertook research to understand what people might do if their received their entire pension pot as cash when they retired.
 
Securing Future Income:
 
Security trumped income as 43% would look for a savings bond/other product which meant that the capital was safe and 36% said they would put it into a bank and use it ‘as and when I need it’. Almost a quarter (23%) would look to buy an income generating asset such as property while others would invest in stocks, shares and collective investments (14%)
 
Worryingly women - who generally have lower pension assets – were more likely to put their pension into a bank account (43% vs. 31% - men) or invest in a savings bond (44% vs. 42% - men). This is of particular concern as arguably the smaller your pension pot, the harder it needs to work to produce an income.
 
Paying Off Existing Liabilities:
 
While some may look to put their money into assets which secure income for the future, others would repay secured borrowing (14%) such as a mortgage or repay any unsecured borrowing such as loans or credit cards (13%).
 
Retirement Treats:
 
In addition, some people would treat themselves to a holiday, car or other luxury (14%), use it to help family members (10%) or spend it on home improvements and upgrading appliances (9%). Interestingly, women were more likely than men to spend their money on making their home more comfortable (11% vs. 8% - men) or helping their families (12% vs. 9% - men).
 
Andrew Megson, Managing Director of Retirement, Partnership said: “Under the new proposed pension rules, people can take their entire pension pot as cash so we were keen to understand what they might choose to do with it. This research clearly highlights that having saved during their working life, most people are keen to keep the money safe or use it to reduce their liabilities.
 
“However, in an attempt to carefully manage what is essentially their income for the rest of their lives, 36% of people would simply put it into a bank account. With inflation at 2.7%, most instant access savings accounts are unlikely to be able to offer rates which meet or exceed this. Therefore, this careful management of their pension fund may actually mean that it is eroded overtime.
 
“While we are convinced that enhanced annuities can – and should – play a role in many people’s retirement finances, we understand that with recent proposed legislative changes, those approaching retirement imminently need time to fully consider their options. We are therefore delighted to have launched our Enhanced Choice Annuity.
 
“This product is a lifetime annuity with a 1-year cash-in option which not only provides people with time to consider their options – post budget –but also protects them against interest rates falls.”