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Savers warned over pension pitfalls

Published 06/04/2015

More than half a million older savers will be handed radical new freedoms as the start of a new
More than half a million older savers will be handed radical new freedoms as the start of a new "21st century pensions system" gets under way.

Savers have been urged not to rush to take advantage of new freedoms allowing them to access their pension pots amid warnings of a potential "triple tax whammy".

People aged 55 and over now have new powers to make one of the most important decisions of their lives - what to do with retirement savings that they have spent decades building up.

The new rules mean the 320,000 people who retire each year with a defined contribution pension are no longer required to use their pension pot to buy an annuity. Instead they can take their pot in one go or use it like a bank account and withdraw cash in slices.

But concerns have been raised about potential pitfalls amid fears some may fall prey to scams, run out of money too early, or not realise the tax implications of withdrawing money from their pots.

The Government's free Pension Wise service is offering guidance to everyone eligible for the freedoms. Pensions minister Steve Webb said today that the Department for Work and Pensions had trained more than 300 staff and he was "confident" adequate capacity is in place.

Urging against any hasty decisions, he said: "We want people to make informed choices. This isn't a mad scramble rush to do something this morning."

Echoing comments he made last month about people blowing their pension pots on a Lamborghini, Mr Webb said that people should be trusted with their own pension pots.

Asked if he regretted his Lamborghini comment, he replied: "If you are that person with that large pension pot, you will pay a hell of a lot of tax.

"But it does summarise the fact we are setting people free.

That tax warning was echoed by Ros Altmann, the Government's business champion for older workers, who said the best advice she could give people was "do nothing".

She said people would be hit with a "triple tax whammy" if they take their money out - on withdrawal, on the new investment and by the loss of the tax-free status the money had in the first place.

"Leave it there... there are huge tax benefits from having the money in the pension.

"The idea is you can take your money out, not that you should take your money out. There's no rush."

Property investing, holidays, using the money to help family members and reinvesting the money with financial firms are some of the ways that people could use their cash.

Labour's shadow chief secretary to the Treasury, Chris Leslie, called for a cap on fees for pensioners withdrawing money and the establishment of a working group to examine the danger of mis-selling.

Mr Leslie told Sky News: "I think this situation could potentially be a risk in terms of mis-selling."

He added: "We are slightly worried that the guidance people need has been hastily cobbled together. I'm told that Pension Wise, the organisation that's supposed to be able to give advice to those now retiring, has only been brought together in the past couple of weeks, and there's been a record number of complaints to the Information Commissioner about people being sold products to do with pensions.

"We have got to be very careful that we don't find ourselves being complacent about the risk of mis-selling."

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