Pension war chest surpasses £5bn as freedom day looms

Pension war chest surpasses £5bn as freedom day looms

Recent retirees are holding back around £5.5bn for the pension reforms to take effect on 6 April, according to new research, suggesting that demand for flexible pension access when new freedoms come into force next month could surpass previous expectations.

Analysis of year-on-year calculations of e-commerce standards body Origo’s transfer data found more than £5bn of pension funds that would likely have been used to purchase an annuity remains untouched by consumers since the changes were announced at the last Budget.

This suggests the amount being held back has continued to spiral after MGM Advantage told FTAdviser last October there was a £3.7bn “prize” of pent up pension pots that would have been crystallised in 2014 but that was being held back to April this year.

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A month earlier, FTAdviser reported that financial advisers were feeling stuck between a rock and a hard place when dealing with increasing numbers of retiring clients asking about the best course of action.

The figures also come in the wake of official predictions earlier this week that 540,000 are expected to seek to access their pension in the year following the changes, far exceeding the original forecast of 320,000 the Treasury has previously quoted in its projections.

Paul Pettit, managing director at Origo, commented that clearly the changes have resonated with people and made them consider what they will do with their pensions now they have a wider set of options.

“This has resulted in many deferring their retirement decisions and keeping their pension pots intact.

“That’s if they decide to do anything. The reality come April could be quite complex and consumers may need advice on a range of retirement planning areas, including income management, tax and estate planning, or debt management.”

The organisation also pointed out that it will be equally important that people are protected against scammers and fraudulent schemes targeting their pension money.

Research previously published by Phoenix claimed close to half of pension savers yet to take benefits have been contacted by a firm seeking about a review of their pension or to release some of it as cash.

Providers have warned that the situation could worsen post-April, as providers will no longer be able to stop transfers and individuals will not longer need to transfer to a potentially illegal scheme to access their cash.

Such concerns eventually resulted in the regulator issuing demands for providers to issue tailored risk warnings to clients seeking to flexibly access their pension.