This was the message delivered to journalists by the pensions minister Steve Webb last week and perhaps a signal that the Government are a little worried that within a month of the Election a pensions fiasco could develop in April when customers request to cash-in their pension plans and the pension providers refuse to do so – either because their pension plans are inflexible or more likely their IT and back-office systems will not be able to cope with the potential demand.
A telling survey has been conducted by one of the UK’s major pension providers, NEST, who canvassed 2000 of its customers – an unusually high sample – about how they would take their pension benefits. Whilst only 7% stated that they would take the whole pension fund in cash a further 20% planned to take the required level of income out of their pension fund (drawdown) rather than buy an annuity and 22% were not sure what they wanted to do.
In fact only 16% of respondents stated that they would like to convert their pension fund into guaranteed income.
Herein lies the problem. At present, the providers default retirement option allow customers to take a cash sum of 25% of their pension fund and the balance is used to purchase an annuity! Whilst most providers are at last telling their customers coming up to retirement that new flexible options are now available (after all they were announced in March last year) their systems are still set to pay out cash plus the annuity.
Going back to Mr Webb’s message, we totally agree – there is no rush to dash for the cash and it is so important for anyone taking any money out of their pension funds that they plan and forecast their income and assets over the many years of retirement that they will hopefully enjoy.
You may say ‘’ we would say that anyway’’ having created the leading edge RetireEasy LifePlan program that shows you when your money will run out. But the important point is you can only ever spend the money once and can you really trust the UK benefit system to help you if you completely run out of cash.
