Fears that savers would blow their pension pots after new freedoms were introduced have failed to materialise, according to new figures that show Brits opting for sounder investments.
Savers took £2.5bn out of their pensions, about £27m a day, during three months following new rules that came into place in April. Yet, during the same period, £2.3bn was spent on 37,000 products that provide a regular income in later life.
The figures, published yesterday by the Association of British Insurers (ABI), reflect the ongoing popularity of prudent financial investments – and allay worries that pension freedoms would lead to people splashing their savings on luxuries such as sports cars or cruises.
Former Liberal Democrat pensions minister Steve Webb, announcing reforms in March last year, said at the time that he was relaxed about how people spent their own money.
“If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice,” he said.
A spokeswoman for the ABI said yesterday: “With £2.3bn invested into new income drawdown products and annuities since the reforms, it’s encouraging that many people who have accessed their pension, have done so with an eye on their future retirement.” The government applauded the figures.
“I’ve always said that people should be trusted with their own money, and it’s clear from what we’re seeing that people are not going to ‘blow the lot’ just because they can get their hands on it,” pensions minister Ros Altmann told City A.M.
Around £1.3bn was paid out in lump sums during the recent three-month period monitored by the ABI. About £1.1bn was paid out via drawdown payments. An income drawdown product is where income comes from a pot that stays invested. It compares to an annuity where the money is given to an insurance company and they pay an income for life. Industry experts have said the lump sums are predominantly being used to pay down debts.
“People are by and large doing sensible things with their money, like paying down debt,” Malcolm Small, of the Retirement Income Alliance, said.
“The passage of time has proved that, overall, people are very responsible with their money.”
Another fear, that the cash would go straight into property, fuelling a buy-to-let boom, has also failed to materialise. Survey figures published by Prudential today reveal that only one in seven homeowners over 55 who are planning a further property purchase are doing so as a result of the new pension freedoms.