Half of those in retirement do not intend to take a tax-free cash lump sum from their pension fund, new research indicates.
A survey conducted by Bank of Scotland Investment Service (Bosis) finds of those respondents aged between 55 and 64, 37% have still not made any arrangements to take the lump sum.
The bank warns low annuity rates are forecast to remain at the same level, so it believes the ability to take up to 25% of a pension fund in cash could prove vital as a means of increasing income, perhaps through re-investment.
Of those respondents who have made arrangements to benefit from the tax laws within the new pensions regime, 15% intend to use the cash to go on holiday, while 8% believe they will reinvest and 6% will use the cash to pay off debts.
Meanwhile, those who were questioned and who have already retired, 57% have already claimed a lump sum, with half using the money to further invest while three in ten put the money into a savings account.
Additional uses for the tax-free cash saw cash used to pay for ‘day to day’ expenses, according to 17%, while 13% use it to pay off debt, and 11% of respondents use the cash to go on holiday.
Alan Jones, head of Bosis, says A-Day will foster a large amount of significant changes in pension rules and it is important for those individuals holding pension funds to be aware of how these changes might affect them.
He says: “Some people may find that they currently have a pension that entitles them to take more than a 25% tax-free lump sum and they need to take action now to protect this benefit. To maximise retirement income people need to consider all their investment options and take professional advice when necessary.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Gareth Vorster on 020 7968 4554 or email [email protected].IFAonline
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