Nearly one in five (19 per cent) over-55s with a private pension withdrew a lump sum during 2019, with the most popular reason for doing so being to put the money into a savings account, new research has shown.
The analysis, commissioned by Canada Life, revealed that one in four people chose to withdraw an average of £18,400 to save elsewhere, with a further one in five people withdrawing an average of £10,000 to deposit in the bank.
Meanwhile, one in five people chose to focus on making home improvements, withdrawing an average of £11,600.
Whilst Canada Life stipulated that the “highest value priority for the pension cash” was to reinvest the money into stocks and shares, this option was chosen by just under one in ten people, with an average investment of £34,700.
However, the findings suggested that there may be a change in trend on the horizon, with just 6 per cent of over-55s stating that they had already taken some cash or plan to do so at some point in 2020.
This compares to nearly 90 per cent who stated that they would not be dipping in to their pension over the next year.
Canada Life technical director, Andrew Tully, argues that these findings show people being “incredibly diligent and at first glance sensible” with their plans for pension cash, rather than painting a picture of “frivolous spending”.
“However,” he clarified, “simply withdrawing taxed lump sums from a very tax efficient pensions environment to put on deposit or save into stocks and shares makes no sense whatsoever.
“Notwithstanding the fact you’ll likely pay tax on any withdrawals, with the changes to inheritance rules around pensions following the introduction of the freedoms, most people should be leaving their money in the pension until it is required for income or to meet other clear spending commitments.”
Tully added: “It looks like the current economic climate has put the brakes on any plans for people who were looking to dip into their pensions again this year.
“Being pragmatic about the current volatility we are experiencing and thinking ahead is crucial. Withdrawing cash when markets are so fluid, more than likely crystallising losses in the process and of course paying tax simply for the money to potentially sit in a bank account is clearly not sensible.
“Anyone with any doubt about what to do, apart from sit tight and do nothing right now, should definitely consult the services of a professional financial adviser.”
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