Over 55s cashing in their pension pots are not shopping around for the best deals when investing their savings, according to new figures.
In the first three months of flexible access to pension funds, financial firms have paid out £2.5 billion.
Around half the money was taken as cash and payments averaged £15,000, says the Association of British Insurers (ABI), the trade body for pension providers.
Flexible access was designed to help retirement savers find better performing investments when they took cash from a pension, but half of savers withdrawing money are taking other financial products from their pension providers rather than look for a better deal.
The ABI says that if these retirement savers are pleased with their deals, then no one should complain, but other financial experts disagree.
A spokesman for financial investment platform Hargreaves Lansdown argued that flexible access is not working if consumers do not shop around for deals.
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“Consumers should be well-informed and confident to shop for the best deals,” said the spokesman. “These deals are out there, but for some reason they do not want or do not know how to find them.
“The focus should be on helping them make the most of their money.”
Other financial experts are concerned that mainly investors with small funds are opting to cash in their pension pots.
“The figures show that statistically, the people with the least savings are those taking their money early,” said a spokesman for Scottish Friendly.
Deprivation of capital
“Flexible access could see an army of retirement savers spending what they have too soon and ending up working longer or facing relative pension poverty when they do eventually give up their jobs.
“It seems many poorer savers believe if they spend their pensions they can still look to the state for financial help in their later years, but this is not the case.”
Although flexible access has meant a financial revolution for many savers, the flip side of taking pension cash early is the ‘deprivation of capital’ rule.
This rule says if you spend your money or give it away and look for support above the state pension, you will only gain aid if the government agrees with your financial decisions.
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