A brilliant move that could help to stimulate the sluggish British economy or a mis-selling scandal in the making? The government’s decision to open up pension funds for people over 55 next year so they can withdraw cash from their fund (partly tax free) has elicited mixed responses from industry experts.
Tom McPhail of Hargreaves Lansdown said: “The chancellor appears to be creating the perfect environment for a mis-selling scandal.”
The Treasury insists that its decision, which will come into effect in April 2015, will benefit thousands of pensioners who will be allowed to withdraw money from their pension savings as often as they want, with 25% of each withdrawal being tax free.
Tom McPhail, a pension expert, said that while he supported the move, he must also warn individuals that if the money is re-invested in the wrong way it could end up providing very poor returns upon retirement.
He added that many professionals don’t get it right all the time, so it was inevitable that ordinary investors would get it wrong more often, especially if they acted without a financial adviser.
Chancellor George Osborne also announced that people would be able to pass on their unused pensions to family members tax-free.
Osborne went on to say: “We’ve extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum.”
From our side we can only warn that using your pension money to get out of debt could prove disastrous in the end. Getting professional debt advice is a much better option.