Pension freedom users warned not to let savings rot in bank account
With interest rates at all time lows the danger of such a move is that these savings are unlikely to be able to provide any income and will likely result in a yearly decline in their value because of inflation.
Indeed according to the new research, just under one in five were investing their retirement savings, while nearly three in 10 (29%) of people were using the money to pay for daily living costs.
“With annuity rates falling, uncertainty around returns on drawdown products and the drop in interest rates, many are opting to manage their savings themselves, through bank accounts or investments,” said Gillian Guy, the chief executive of Citizens Advice.
Commenting on the findings, Royal London’s director of policy Steve Webb said simply putting pensions savings into a cash account is worse than splurging it on luxury items.
Webb said: “The big risk to the success of the pension freedoms is not pension money being spent on Lamborghinis; it is pension cash being moved into bank accounts and left to dwindle.
“If pension savers are putting their money into a bank account on a temporary basis before reinvesting it, then there is less to worry about. But if they simply leave their money in an account paying little or no interest, they will see its real value decline year-after-year through inflation.”
As a result Webb cautioned that it is vital that anyone considering taking their money out of their pension pot has access to high quality advice and guidance, which stresses the option of leaving the money invested.
“Consumers need to be made aware that putting your cash in an account paying very little interest is not a safe option and will mean that you are missing out on the returns you could get if you left your pot invested.”