For most of us, retirement represents the period of our lives when we can relax and wind down safe in the knowledge that the kids have fledged the nest, the mortgage is paid and other than ensuring that there is food in the cupboards that we are still able to digest, there is very little left to worry about…
However, for more than two million pensioners in the UK the above is a far cry from the truth. Scraping by on less than 60% of the average yearly income is more like their reality.
But how could this happen? You are in control of your finances, you managed to release a load of cash following the Pension Freedoms reforms so the mortgage could be paid and the extension finally completed (maybe that big swimming pool wasn’t such a good idea now the kids and gran kids have moved away).
Can we blame the Pension Freedom Reforms?
After all, as we get older we tend to get better at managing money so where did it all go wrong? Whilst the reforms offered a fantastic opportunity for people over the age of 55 to be able to have greater control over their savings, in particular their pensions, it also perhaps offered a little more freedom than most of us know what to do with. The ability to move your pension to where you want it and the ability to take up to 25% as a cash lump sum (more than £30 billion has been accessed so far) were both great, but how many of us have retirement planning knowledge and experience? The stock markets? Investment models? Pension schemes? There is a good reason why we look to professionals for this type of knowledge and assistance. Yet, the Pension Freedom reforms placed us as individuals in control of our financial and retirement planning future by allowing us to steer our ship to where we think it should sail – remember needing the professionals? Imagine being told that we can now build our own houses and not to worry too much about ‘building Regs’ or getting some building experience first (but just don’t come crying when the house gets blown down by the big, bad, wolf).
We often only realise when it’s too late that by withdrawing huge amounts of cash we can all too easily be setting ourselves us for financial hardship in the future and on retirement. According to recent data, the rate at which people are withdrawing their pensions is at an all time high. Around 40% of withdrawals are at an annual rate of 8%, even though most people are advised that if they want to continue to eat food that hasn’t gone out of date following retirement, this figure should be more like 3.5% – any more than this and you run the serious risk of running out of cash.
This financial predicament can be placed firmly at the door of Pension Freedoms. However, there are a few things that we can do to ensure that we don’t fall victim to pension poverty –
- Save as much as we can!
If you’re auto-enrolled in a workplace pension scheme the minimum contribution is currently set at 8% (4% from you, 1% tax relief and 3% from your employer). But in order to maximise savings you should try and make additional contributions, or even pay into a second, private pension. Small sacrifices made now can boost your comfort on retirement.
- Check your state pension.
The government provide a handy tool which allows you to check your state pension forecast. This is a great way to establish facts; what you will be entitled to and when.
- Get to grips with your options.
To avoid pension mis-selling and to enable you to make an educated decision it is important that you understand the rules of Pension Freedom. We would recommend Pension Wise, which is available to anyone over the age of 50 and is a great way of helping you to fully understand your options.
In some circumstances (i.e. if you wish to transfer a pension with a value of more than £30k) you are obligated to hire a financial advisor. As long as your advisor in regulated by the FCA, they can provide excellent advice and assistance. Having said that, in recent years a lot of people have been given poor advice by regulated advisors regarding both pension freedoms and the resulting options which are available to them. Many people have been advised to withdraw huge amounts from their pension pots despite it not being in their best interests to do so. If you fall into this boat, the good news is that if you have suffered a significant financial loss as a result of poor pension freedom advice, you could be entitled to compensation. There are several ways you can claim:
- Directly to the IFA or company who gave the advice, if the company is still trading,
- To the Financial Ombudsman Service or Pension Ombudsman,
- The Financial Services Compensation Scheme if the IFA or company has ceased trading,
- Via your personal insurance policy if you have legal assistance, or
- By using a claims management company or specialist law firm such as Money and Me Solicitors.
The team of financial product mis-selling experts at Money and Me Solicitors have exceptional knowledge of pension freedom options and the limited number of circumstances when it is okay to withdraw large cash lump sums. By applying their knowledge and experience, the team can offer guidance on your eligibility to make a claim and, if necessary, to help you to pursue your claim.
The ultimate goal of Money and Me Solicitors is to prevent pension poverty and ensure that food in the cupboards is fresh. So, if you think that you may have been a victim of pension mis-selling or are slowing sinking into pension poverty, please do not hesitate to give the team a call on 01925 895 625 to discuss your circumstances or send us an email to firstname.lastname@example.org.
Read more about Pension Freedom.