April 6 marked a year since the introduction of radical reforms to UK pensions. New research from Aegon UK revealed that 15% of the working population is saving more into their pensions as a direct result of new pension freedoms, with 6.2 million across the UK now contributing more than they did in April 2015.
Nearly a fifth (18%) of those aged 55 to 65 have taken advantage of the new rules and have accessed their pension savings in a way that was not possible before April 2015. Around 11% have taken part of their pension as a lump sum and just 5% have withdrawn their entire savings pot.
The average amount UK over-55s are cashing in is just £13,842, calming initial fears that the pension freedoms would create a reckless ‘Lamborghini’ generation.
Additionally, 82% of those aged 55 to 65 do not plan to take any of their pension savings yet, suggesting that many are taking a longer view in relation to their retirement income. This is supported by recent figures from the Association of British Insurers (ABI), which mark a slowdown in the original ‘dash for cash’ observed in the six months following the introduction of the new pension freedoms.
The most common reason for over-55s to withdraw a lump sum from their pots is to settle debts (30%). Approximately 22% have taken out cash to put into a cash ISA and another 22% have put the money into their existing bank accounts. Around 15% have invested the money in a stocks-and-shares ISA and a further 13% have spent the money on home improvements.
Kate Smith, head of pensions at Aegon UK, said: “To see 6.2 million people saving more into their retirement pot in the last 12 months is very encouraging news. Although the initial focus of the freedoms was to create individual’s choice and control for those at retirement, these are positive signs that the latest pension reform has had a broader impact in encouraging better savings behaviour amongst younger and older generations alike.
“In addition to this, there are positive signs that the freedoms are being used responsibly by those at retirement. Despite the initial scaremongering, the majority of people aren’t withdrawing vast sums of money to embark on a huge spending spree. Although concern exists about pension freedoms prompting over-55s to fund buy-to-let investments, less than 1% are choosing this option. With the government looking to tighten up lending rules over fears that retirees risk their retirement income in the event of a property crash, this choice is looking increasingly less attractive.
“Over-55s must continue to be smart with their money; cash ISAs and bank accounts are unlikely to provide the best returns in the current climate. Retirement could well last 20 or 30 years, so it’s vital that people are helped to make choices that will give them a sustainable income to give them the retirement they want for as long as they need.”