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People risking retirement plans by leaving pension savings in cash

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Ian Price (pictured), divisional director at St James's Place, comments on how the UK has taken up the new Pensions Freedoms reforms…

Much of the talk around the new pension freedoms has focused on being free to get out of your pension, but equally you can have freedom while you’re still in your pension. Rather than consumers seeing it as ‘open season’ for their money, they should think of it as an opportunity to utilise their pension fund in the most advantageous way possible.
 
Some people may be cashing in their pensions just because they can, or because they like the idea of having the money on tap in a bank account. For very small pots this is understandable, but for larger pots the impact of tax and, potentially, inflation may be considerable. 
 
It may be that those withdrawing their pension savings simply lack the confidence in their own financial acumen to make the right decision about how to fund their retirement and that, metaphorically, ‘stashing it under the mattress’ is the safest option. But, by doing just that, they increase the risk of inflation depleting the spending power of their money, or worse still, incurring significant tax charges by reinvesting – and all without actually gaining any additional benefit that is not already available within their pension.

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