Money matters: Weighing up risks of pensions freedom
I had a long chat with a reader, 59-year-old Paul who, like a lot of people his age, is looking forward to the new pension freedoms that come into force next month. He's attracted by the new opportunity to be able to take the cash out of his pension pot and do whatever he wants with it.
It is a pleasing prospect. Paul plans to put the £30,000 he has sitting in two pensions into improvements for his home and garden. "I worked out that the pensions would give me an income of around £75 a month, which won't go very far. The £30,000, on the other hand, would be really useful now to finish my home off. I've got several little jobs to do and a garden to sort out."
But things aren't as simple as that. "I asked questions at my bank and Citizens Advice, who raised the tax risk - which I didn't really understand. I'm not a financial whiz-kid but I'm not silly with money, so I'm now talking to a financial adviser to work out the best option."
Paul's not alone in finding it hard to make sense of his choices. Gillian Guy, chief executive of Citizens Advice, says: "People want to be in control of their finances in older age. It is vital they get support to help them understand pension options, so they can make informed choices."
It is vital. The new pension freedoms that come into effect from April 6 may give you the chance to take the cash out of your savings and do what you like with it. But anyone who does could end up making a costly mistake. First, there could be a huge tax demand on the cash - as much as 40%.
The second reason is a reminder: a pension is a planned savings scheme with a clear intention - to ensure you have enough cash to last through your older years.
If you don't use the cash to buy yourself an income for life, then you could end up being reduced to living off the relatively meagre state pension.