In OAPs we trust

In case you were wondering, it does not seem this uplift in the fortunes of one of the world’s biggest luxury car brands has as much to do with the pension freedom rules as first expected, since of course the Lambourghini was the luxury car often quoted as the object of desire for pensioners keen to rinse their pension pot of as much money as possible as soon as they could.

What seems to have happened in reality is much more pedestrian in fact, with most people taking a ‘sensible approach’ as 57 per cent of pensioners have taken 1 per cent or less of their pension pots in the last quarter, according to the latest figures from the Association of British Insurers (ABI).

That said, there is apparently a minority who have withdrawn “too much too soon”, creating an expectation that their funds will run out within a decade or less if they have no other source of income.

In total, £4.3bn has been paid out since the rule change back in April 2015 to April 2016 in 300,000 lump sum payments averaging £14,500.

A further £3.9bn has been paid out in drawdown, at an average of £3,800. Clearly not enough to fund a luxury car purchase, so Lambourghini’s figures must be up for a different reason.

In total, £4.3bn has been paid out since the rule change back in April 2015 to April 2016

When it comes to dealing with our finances, the government tends to get confused, in my opinion, about who knows best – it, or us.

Frankly, I am pretty sure we know how to use our own money effectively more than the government does, yet there is always a tendency to assume we do not.

The thing is, as Fiona Tait, pensions specialist at Royal London pointed out, advised pensioners are taking less than half of the average ABI amount and the tax ‘brake’ on anything above the 25 per cent lump sum makes “people think twice before they take money out of their plan”.

Ms Tait makes an interesting point though, that a similar tax ‘brake’ does not apply to Lifetime Isas, which some people may consider using instead of pensions for long-term savings. Whether these survive the new Chancellor’s first budget remains to be seen.

Advisers have a big role to play in ensuring people make the right decisions about their pensions, and there is little doubt you are doing a good job. Royal London’s figures show despite the average pension pot, it is dealing with through advised sales being slightly higher than the average ABI pot, the typical amount taken is significantly lower.

Ms Tait added: “While the average percentage withdrawal for the ABI was 5.63 per cent across the first 12 months of pension freedoms, members with Royal London plans are withdrawing 2.62 per cent. We believe this is due to advisers helping their clients to understand how much they can realistically withdraw without running out of money in the early years.”

This is a key point. For most of us, hearing we have £50,000 in a pension that we can take out when we like could be a little like winning the lottery – it is a sum that is beyond what most people would have considered available to them at all, let alone as and when they want after they hit 55.

Smaller pots are still generally being taken as lump sums, with an average payout of £14,800 according to the ABI figures. While the average fund invested to generate an income through an annuity or drawdown is at £59,600. But there is more work to do to make sure pensioners are getting the best deal with what they have.

For example, more than half of customers are still taking their annuity from their pension provider rather than shopping around for an alternative, according to AJ Bell’s senior analyst Tom Selby.

As Mr Selby quite rightly said, there is a real risk of consumer detriment if they are locking into an annuity before checking if a better deal is available somewhere else.

Early exit fees have been a problem too, so the news that the Financial Conduct Authority is acting to peg early exit fees at just 1 per cent from March 2017 will help those looking to exercise their options under the pension freedom rules. These fees are imposed by some providers on customers wishing to access their pots before age 65 or 70, and can reach thousands of pounds.

But as with all these changes, this is still in the consultation stage – even though some providers have already acted to make their exit fees fairer – and it will be March next year before the cap is implemented.

So, it seems the bottom line is we are not as crazy with our money as the government thought we would be, but advice is still clearly needed to help pensioners make their income last as long as they do.

Alison Steed is a freelance journalist