Advisers are reporting increasing numbers of clients seeking to the withdraw tax-free lump sum from their retirement fund even if they have no immediate need of it, due to a lack of trust in the pension system.
Manchester-based advice firm Appleton Gerrard told FTAdviser the number of internet inquiries it has received from non-clients on this matter is rising, as people wonder if reinvesting 25 per cent of their pension somewhere else would be a better option than leaving it put.
Kusal Ariyawansa, chartered and financial planner for Appleton Gerrard Private Wealth Management, said "people are worried".
"They do not trust the politicians or the sustainability of the pension system,” Mr Ariyawansa said.
Other advisers FTAdviser spoke to had similar concerns.
Ben Smaje, chartered financial planner and managing director at Kennedy Black Wealth Management, said clients are worried the government may scrap the 25 per cent tax free lump sum all over 55s are entitled to when they first access their pension.
"I think a lot of pension rules are up for change at some point and an easy target would be the 25 per cent tax-free cash,” he said.
Mr. Smaje had one client who took advantage of this benefit “for a number of reasons, but one of them was that he did not think the tax-free cash element will remain indefinitely”.
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, also believes that “there is a lack of trust in the government” on pensions.
“We need to have a period of stability. There have been so many changes [in the pension system] in the last couple of years that a lot of people have been put out of saving,” Mr. Chan said.
High defined benefit pension scheme transfer values are also fueling interest in the tax-free lump sum, Mr Ariyawansa said, with providers registering high levels of demand from customers.
According to HM Revenue & Customs statistics, the amount of cash being pulled out of pensions reached its highest level in the second quarter of 2017 since the 2015 pension freedom reforms.
Such a big movement of money has led regulators to take a closer look at how people are being treated by the financial services industry when it comes to their often irreplaceable nest eggs.
A damning report by a Financial Conduct Authority (FCA) advisory panel published last month warned financial services firms are exploiting consumers, by developing complex products with obscure or misleading prices and small print.
“There are a lot of pension funds investments that people do not know what they are and do not understand,” which adds up to the lack of trust in the system, Mr Ariyawansa said.
He added some providers are addressing these concerns, when questioned by their own customers. But those who need more information should look for a proper independent adviser, he added.
When questioned by his own clients, Mr Ariyawansa's advice is “if they do not need the money, and they are simply worried, they should leave it where it is".
maria.espadinha@ft.com
