"FCA data released today makes for terrifying reading. The report reveals that nearly half of pension plans were accessed without regulated advice or guidance being taken by the plan holder. This may be a result of the fact that 4 in 10 of all the pension pots accessed had a value of less than £10,000 which might make those accessing the plan believe that they don’t have enough money to warrant getting financial advice in the first place. But it is important to think about the big picture and get advice on all the assets at your disposal in retirement, not only your pensions. And even if advice isn’t right for you, guidance comes at no cost to the public and everyone should seek guidance as a basic first step before taking cash from their retirement fund.
"Failing to get advice could have disastrous long term consequences unless you have a very good understanding of the tax landscape and are able to objectively plan a sustainable retirement strategy, which very few people can. Scarily, 350,000 pension pots were fully withdrawn at the first time of access; 90% of which were less than £30,000 in value. If you take a lump sum in a single tax year it is likely to result in having a much heftier income tax bill than if you chose instead to take the money out gradually.
"However, it’s clear that even among those who are choosing to take their money gradually through drawdown, many are not doing it in a financially prudent manner. The FCA’s data shows that 40% of retirees taking a regular income were drawing down their pot at an annual rate of 8% or more. This rate of withdrawal risks putting people at risk of ruin if they deplete their pot too quickly and outlive their savings. There are few instances where this would make financial sense, making it likely that this is being done unadvised and these pensioners are greatly jeopardising their chances of a prosperous retirement. An appropriate withdrawal rate depends on what other assets you have at your disposal, other sources of income, your age, your investment return and so on but it is crucial to get professional advice so that you understand how your drawdown decision will impact on your pot over the course of retirement.
"While pension freedoms gave people the opportunity to take control of their own finances this does come with a huge degree of responsibility. As a result we need to make sure that the public are engaged with the consequences of poor pension planning and understand how valuable financial advice can be for not only the longevity of your pension pot but for avoiding huge tax liabilities too"