A professional man takes out £120,000 from his pension pot after being made redundant…
…Only to burn the lot on gambling, alcohol and a new car.
As a result, he is left penniless, and has to claim housing benefits.
While the case, which was part of evidence relayed to the House of Commons work and pensions committee in 2017¹, is unusual, it is not unique.
Under pension freedoms, people over 55 can access their pension money even before retirement. And it is not unknown for the money to be used to fund luxuries and non-essentials, rather than to help people manage once they have stopped work.
In fact, some of the items people buy are eyebrow-raising…
Research by the Pensions and Lifetime Savings Association, published in the FT², found that about 20% of those over 55 who had cashed in some of their pension pots had spent the lot, leaving them with no income in retirement.
The most common item they spent the money on? Home improvements.
61% had put at least some of the money into a cash or savings account – where it earns little or no interest, and may even see its value erode.
Meanwhile, according to the independent Pensions Advisory Service³, some over 55s intended to spend their pension money on face lifts and breast implants.
Other items on the wish list? A Winnebago… and an expensive telescope.
Let’s be clear. This is not the norm. Most people appear to spend their pension money entirely sensibly.
Yet it’s not altogether surprising, either.
For many people, getting access to their pension pot at 55 under pension freedoms can feel like winning the lottery.
Most people have never seen £30,000….. £70,000….. £250,000 hit their bank accounts.
And understandably, the temptation to spend that cash might prove too much, particularly if they feel burdened by debt – or have never developed healthy spending habits.
Unfortunately, once their pension money is gone, it’s gone.
And that can cause considerable distress, as people realise that their dreams of a comfortable retirement may have gone, too…
Or, even worse, as they have to survive on very little in retirement, despite having saved into their pension for years.
I’m sure that’s not what you want for your employees.
You have worked hard to set up a good pension scheme, made generous employer contributions, and encouraged your employees to save, too.
You want them to be able to retire - comfortably.
So why not help them at the very final hurdle, when they reach 55 and can finally access the money you have helped them save?
What they probably really need at this stage is good guidance and advice on how best to use that pot…
Someone to help them think through their options, understand the repercussions of their financial decisions (including the tax implications of taking money out their pot early, which they may not be aware of)…
….and make sure they have a plan in place, for their money to last through their retirement.
Many people never think of getting financial advice at this stage.
A recent survey of 2,000 people by Legal & General⁴ claimed that 32% of over 55’s spend less than a week deciding what they are going to do with their pension income.
But as an employer, you can easily help them get the guidance they need.
If that is a service you might like to offer employees approaching retirement, get in touch with me today to discuss the options.
We can help you support them in a variety of ways, including:
>> In person – Through training seminars or a session with a financial consultant
>> Over the phone – Through our pensions hotline
>> Online – By giving them access to our many digital resources, including our brand-new FocusHub library - Check it out here, and feel free to share the link with your staff right now!
Get in touch to discuss which option might be best for your organisation.
These could all be small gestures on your part. But for your employees, they could mean the difference between a comfortable retirement – and no retirement at all.