Withdraw and reinvest
Some savers may be tempted to take a lump sum out of their pension pot and reinvest it elsewhere. This is understandable if you want to invest in an asset that you can’t traditionally keep within your pension wrapper, such as a buy-to-let property.
But it’s worth remembering that pensions are an incredibly tax efficient way to save, and by moving your money outside of the pension wrapper you are potentially exposing yourself to a far greater tax outlay.
As Jamie points out: ‘Pensions enjoy all sorts of tax breaks that are designed to encourage you to save for your future. And you can spread your investment risk widely while still remaining within a pension wrapper.’
Avoiding the scammers
The pension freedoms haven’t just given savers greater say over how their money is used. It has also been a boon for scammers, looking to sweet-talk the over-55s into moving their pension lump sum, or even the entire pension pot, into far more volatile – and, in some cases, outright fraudulent – schemes.
More than 250 people reported being the victims of pension scams in 2017, losing an average of £91,000 each, according to Action Fraud
, while the Financial Conduct Authority
(FCA) reckons that 23% of adults experienced an unsolicited approach about pensions or investments that might be a scam between June 2017 and June 2018.
If you want to avoid being caught out, be suspicious of any pension or investment offers you receive out of the blue, whether over the phone, by text message or by email. Read our article on recognising and reacting to potential pension scams
to stay safe.
Don’t allow anyone to rush you into making decisions about withdrawing any of your pension or reinvesting it. Instead, if you’re thinking about taking out a lump sum, work out the balance you’ll need to support yourself into your retirement.