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On gaining pension freedom

British pension savers have been granted the freedom to spend their pension pots how they choose. Amid the hype, does what’s happening tell us anything useful?

As described here the UK market is still unsettled following the unexpected end of the requirement for most people with money saved in a defined contribution (DC) pension to buy a lifetime annuity. Pension savers aged 55 or over can now take out all or part of their pot, subject to tax rules. Government agencies, including the Financial Conduct Authority (FCA) and HM Revenue & Customs publish statistics on what is happening and industry organisations have published their own surveys to try to understand actual behaviour.

However, this data might not imply lessons that could be applied elsewhere, because:

Adding to the difficulties in understanding what is going on, dramatic headlines are quite misleading. Over-55s spend pension savings on home improvements is just wrong.

At the risk of being proved wrong myself by later statistics or a misinterpretation of the UK’s unique situation, here are some conclusions from these reports. So far as it is possible to tell:

Pension freedom was expected to shrink the annuity market as more product choices become available. This is happening. But it is not yet proven that people are actively choosing the right annuity for their needs. Annuities continue to be bought with features which are the opposite of what the Money Advice Service – the government provider of free and impartial money advice – urges people to buy. Pension freedom still leaves the risk that some annuity purchasers make mistakes.

What’s needed is less hype about how some people might be spending their money, and more noise about how people can get some useful help.


* This rule is a consequence of being able to take pension money from a pot at a relatively young age (55) while you still might be contributing.

** From the Money Advice Service annuity calculator February 2016 for a healthy 67 year old female living in rural England.

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