Pensions free-for-all

[Vicki Vixen]

So after the first week of 'pension freedom' has anyone cashed in their pension and bought a Lamborghini? Or worse still, a buy-to-let property? Over 55s only, I'm afraid.

[Rob1742]

Difficult one, and one where my view changes as to whether this is a good thing or not.

It is your money, your savings, so best that we are allowed to take our money how we want too.

However, there will be some that do the wrong thing and use the pot up too early.

I suppose if you were inclined to take out a pension, the chances are you would have the mentality to use the money the correct way when it can't around to be able to use it.

So on balance, it's probably a good idea that this change has taken place

[Sir Fynwy]

Your pension pot is tax free unless you take too much out and have to pay a load of tax on it

[Rincewind]

I've not bothered. Not sure if it will be worth it as my PC is means tested. Not likely to spend the lump sum. If I was given 6 months to live it would be different of course. I am not desperate for a lump sum.

[Julian Joachim Jr Shabadoo]

I love egg fried lump sum

[MooseBreath]

Always nice to have a choice about what you can do with your own money.

[Sir Fynwy]

Always nice to have a choice about what you can do with your own money.

Definitely, just be careful about the extra tax you have to pay if releasing lots of cash

[Vicki Vixen]

Always nice to have a choice about what you can do with your own money.

Nice if your pension plan provider gives you that choice. Just because government has allowed people the freedom, doesn't mean the pension providers have to accommodate it. Many people will need to transfer their pension to a different provider if they want to cash out, and that may take a long time and come with its own costs.

[Crinklyfox]

Nice if your pension plan provider gives you that choice. Just because government has allowed people the freedom, doesn't mean the pension providers have to accommodate it. Many people will need to transfer their pension to a different provider if they want to cash out, and that may take a long time and come with its own costs.

Regrettably true. I have pensions from more than one company (as many of us will have) and one has advised they will only permit me to buy an annuity with it, I have to move it if I want cash. I haven't taken it yet in the hope that the regulations will change. I looked into annuities some years ago and was horrified at the poor value they offered. It's good to have a regular income though, I wouldn't like to have to survive on the State pension alone.

My perception is that freeing up pensions will result in even more pensioners taking the cash and investing in buy-to-let properties as a better investment than annuities with rent returns outstripping the annual sums the annuity providers will issue for the same value investment. That will regrettably only add further fuel to the housing market and keep house prices too high for first time buyers.

[MooseBreath]

Nice if your pension plan provider gives you that choice. Just because government has allowed people the freedom, doesn't mean the pension providers have to accommodate it. Many people will need to transfer their pension to a different provider if they want to cash out, and that may take a long time and come with its own costs.

Didn't realise that. It's very poor given that most employees have no choice over their pension provider. Hopefully in time the process of switching is made easier through either greater awareness or regulation.

[MooseBreath]

Be interesting (well, not spectacularly so but a bit) to see what this does to annuity rates. If they drop much lower nobody will take them. Providers might have to raise the rates to tempt people back, but they won't be able to do that unless the risk profile allows it, and I'd imagine people who expect to die relatively early due to their lifestyle or hereditary experience will probably take the cash, forcing the rates down.

Personally if I was retiring today I'd take the lump sum because I'd be confident of investing in a portfolio that would give me better returns than current annuity rates, but for most I reckon annuities are still the most sensible option.

One things for sure, investment scammers are licking their lips at the prospect of a load of old people sitting on a pile of cash.

[Vicki Vixen]

Be interesting (well, not spectacularly so but a bit) to see what this does to annuity rates. If they drop much lower nobody will take them. Providers might have to raise the rates to tempt people back, but they won't be able to do that unless the risk profile allows it, and I'd imagine people who expect to die relatively early due to their lifestyle or hereditary experience will probably take the cash, forcing the rates down.

Personally if I was retiring today I'd take the lump sum because I'd be confident of investing in a portfolio that would give me better returns than current annuity rates, but for most I reckon annuities are still the most sensible option.

One things for sure, investment scammers are licking their lips at the prospect of a load of old people sitting on a pile of cash.

Annuity rates are low for three reasons

1) their prices are directly linked to govt bond yields, which have been driven down by QE

2) EU law requires insurers to have very high levels of solvency, meaning the same annuity is 20%+ cheaper in, say, the US compared to the UK

3) projections of life expectancy in the UK are very cautious compared to most other countries, meaning insurers overestimate how long the annuity needs to be paid for

An annuity is besically insurance against the cost of living longer than expected. It's not an investment product. Therefore most people shouldn't be thinking about buying annuities until they are well into their 70s, at which point they should be slightly better value for money.