Personal PensionFeb 24 2015

Personal pensions: On the up

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      Personal pensions: On the up

      The retirement world has been entirely turned upside down since the last personal pensions survey. In a mere matter of weeks, pensioners around the country will be able to withdraw their pensions as a lump sum and be able to spend it however they wish – after some gentle ‘guidance’, of course.

      From the age of 55, anyone with a pension pot will be able to take 25 per cent of it tax-free, convert some into an annuity (although the need for one has now been abolished), or they can withdraw the cash in a lump sum or in stages, but will be subject to the highest tax rate.

      As retirees have a wide range of options to withdraw their pension funds, advisers are also faced with the challenge of ensuring the best route for their clients.

      The biggest concern will be the amount of people withdrawing their pension and spending it without listening to any guidance or advice. According to recent research from BlackRock, 9 per cent intend to withdraw their pension and invest it elsewhere to generate an income while 8 per cent will put it into a cash savings account.

      The data, part of the group’s Global Investor Pulse survey, says 28 per cent are still undecided what action they will take while 26 per cent will opt to stay invested in their pension plan, taking regular withdrawals and using part of it to purchase an annuity. Almost one in five admitted they will withdraw all of their pension and put it elsewhere (of those, 9 per cent will invest to generate an income and 8 per cent will put it in a cash savings account).

      As new types of products are launched to exploit the new freedoms, what is the future for the personal pension? Although personal pensions are no longer a favourite product in the industry, there may be scope for a revival in popularity.

      Although the market has been shrinking over the past few years, with-profits pensions have a long history. Data on how many with-profits pensions are still in force is not available, but the next 12 months could be make or break for the product.

      Little consolidation

      Over the years, there has been plenty of consolidation of pension providers, and many have become closed to new business. As such, providers have little incentive to provide any performance data because they are not looking for any new clients. For companies that did not return surveys, the with-profits data shown is taken from the Form 59 A and B on their annual PRA returns.

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