Is cash really king in retirement?
Steve Webb, pensions minister at the time, suggested people might blow their pension pots on a new Lamborghini, even if they end up relying on the state for support later in retirement.
Despite some of the hysteria at the time, the reality of pension freedoms appears to be quite different.
Pension provider Partnership asked over-40s what proportion of their pension pots they intended to take in cash when they retired.
This age group typically intended to take only 27% of their pension pots as cash; this is only marginally higher than the tax free cash allowance of 25%.
In addition, while 45% were supportive of the new pension freedoms, which allow people to cash in pension pots, only 34% say that if people ‘blow their cash’ they should not expect state support.
So if you do blow your pension pot on a sports car to celebrate your 55th birthday, public opinion is unlikely to be on your side when you need state support in later life!
The research by Partnership did identify some differences in retirement cash intentions between different age groups.
Those between the ages of 51 to 55 were most likely to take more than half of their pot as cash at retirement (18%) but those aged 46 to 50 intended to take the largest proportion as cash (31%).
Those aged 56 to 60 were most likely to take their entire pension post as cash (9%).
I wrote recently about the need for the government to trust people with their pension pots; this research suggests retirees can be trusted to make sensible decisions with what is, after all, their own money.
Taking cash from your pension pot is something you should only consider if you have a purpose of that cash.
The Partnership research found there were various intentions for spending the cash.
45% said that they wanted to keep it in a bank account for treats, 18% wanted to spend it on a holiday or something to celebrate retiring and up to 31% intended to repay borrowing
Replacing a car (16%) or household appliances were also a priority (11%) for retirees.
Whatever you decide to do with your pension pot following the new pension freedoms, make sure you consider all of the options as well as the consequences of your decision.
Speak to an Independent Financial Planner before drawing cash from your pension pot, and think about the future when window shopping for that new Aventador.