Thousands of over 55s are drawing cash from their retirement savings under pension freedoms to leave the money earning a pittance in a bank account.
Pension rules introduced in April 2015 allow anyone over 55 to take cash from their pensions to spend as they wish.
But instead of spending or reinvesting the money, thousands of people are keeping the money in the bank where it is earning almost nothing.
Earlier this month, the Bank of England slashed official interest rates from a record low of 0.5% to 0.25%, meaning savings accounts pay little or no interest.
The research by charity Citizens advice looked at how retirement savers are spending their cash under pension freedoms.
Diminished savings
The results found:
- 30% were drawing their cash to save in the bank even though they are diminishing their savings before they want to spend the money by paying tax and losing any investment growth while receiving meagre interest in return
Many were also losing valuable state benefits as the pension withdrawals pushed them over savings limits that stopped their claims
- 30% spend their pensions on day to day living costs
- 16% pay off debts
- 18% reinvest the money
“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,” said Citizens Advice CEO Gillian Guy.
Call for more financial advice
“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.”
Most over 55s told researchers that they felt better off thanks to pension freedoms.
More than three-quarters believed they had more control over their savings, while half explained they could enjoy their healthy retirement years better by spending extra cash.
Only 5% said they were worse off.
Many felt more financial advice would have aided them in making better money decisions.
A third felt they would have profited from more guidance, while one in four wanted more information to compare their options.
Pension provider trade body the Association of British Insurers has warned some over 55s are drawing too much cash from their pensions and may run out of money earlier than planned.
