Cashing in your pension…is it really such a good idea?

Cashing in your pension

The over-55s can now cash in their pension rather than having to buy an annuity – an income for life.

Over the past year, more than 90,000 have steered away annuities, preferring an income drawdown,
which means that you leave your pension invested for growth and draw down income as and when
Incredibly more than one in five people admit they did not fully appreciate the risks and more than one
in 10 feel that they may have made the wrong decision.
The main drawback with income drawdown is that if the stock market falls, so does the value of your
pension. It is thought one in four people are now suffering from drawdown losses.
Half of retirees are worried about future volatility of the stock market and many regret failing to take
professional advice to understand the risks.
Simon Massey, the wealth management director at MetLife UK, said: “The fact that so many drawdown
customers are unhappy and did not understand the risks to their cash is a real threat to the success of
pension freedoms.” Adding that “Real pension freedom is not being served by the rush to drawdown.”
The Financial Conduct Authority have just confirmed a 1% cap on exit penalties for savers who access
their personal, stakeholder or workplace pension early. But the charge of 1% still means that people
wishing to withdraw funds of say, £50,000 would still have to pay £500 to do so.
What to do with your pension is a serious business and people need to take advice. Admittedly
independent financial advice is not free but could prove invaluable in the long run.

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