Test pensions

By THIS IS MONEY
Updated:

 

THE City watchdog has warned consumers could cut their retirement income by more than 50% if they cash in their pension pot before they retire. The Financial Services Authority is also looking at firms offering 'pensions unlocking' deals and will act if it thinks consumers have been given inappropriate advice or misled in advertising.

Pensions unlocking allows someone who is over 50 to release money from an occupational or private pension before they reach retirement age. Under the schemes pensions benefits are transferred to a new pension, 25% of which can be taken as a lump sum, with the rest used to buy an annuity to provide a retirement income either straight away or when the holder is 65.

But the FSA warned that a man who unlocked his pension 12 years before he was due to retire could see his income cut by more than 80%, while on average benefits are reduced by around 40% to 50%.

A 53-year-old man who had a pension fund with a transfer value of £11,256 and took a cash-free lump sum, could see his annual income reduced to £340 a year if he bought an annuity at 65 under one of the unlocking schemes compared with £1,824 a year if he had left the money in his original pension.

David Kenmir, director of investment firms at the FSA, said: 'Releasing cash may sound very tempting but you need to stop and think about whether you really need to do it. '

Information on pensions unlocking and questions consumers should ask a financial adviser before embarking on one of the schemes can be found at the FSA's web site under the What's New section.

A 53-year-old man who had a pension fund with a transfer value of £11,256 and took a cash-free lump sum, could see his annual income reduced to £340 a year if he bought an annuity at 65 under one of the unlocking schemes compared with £1,824 a year if he had left the money in his original pension.

A 53-year-old man who had a pension fund with a transfer value of £11,256 and took a cash-free lump sum, could see his annual income reduced to £340 a year if he bought an annuity at 65 under one of the unlocking schemes compared with £1,824 a year if he had left the money in his original pension.

A 53-year-old man who had a pension fund with a transfer value of £11,256 and took a cash-free lump sum, could see his annual income reduced to £340 a year if he bought an annuity at 65 under one of the unlocking schemes compared with £1,824 a year if he had left the money in his original pension.

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