Pensions industry calls on savers not to make rushed decisions

The UK's pension industry has appealed to customers not to not rush into cashing in their savings as they reported record call volumes triggered by major reforms that came into force this week.

Pension providers said they experienced unprecedented numbers of customer enquiries after savers aged 55 and over were given new flexibility to cash in their savings as of April 6.

There are no industry-wide figures yet, but providers reported that some customers were cashing in funds to spend on property purchases, pay off debt, update their kitchens and pay off spouses in divorce cases.

Scottish Widows described the week as a "watershed", saying it handled about 12,500 calls on the pension changes since Monday, in addition to 1,000 online instructions from clients wanting to cash in their savings.

In total, this represented just over 2 per cent of eligible customers, said the company, which is part of the taxpayer-backed Lloyds Banking Group.

"We expect call volumes and customer enquiries to continue at this level for a number of weeks to come and we are prepared to deal with two years' worth of normal demand in a two or three month period.

"Our message remains the same - people should not rush in and make a 30-minute decision on what to do with 30 years' worth of savings."

Fidelity reported a "significant" increase in call volumes with about a fifth of its customers in company pension plans wanting to cash out, with the average amount being £34,000.

However, it added that some had taken out much larger amounts.

"This may seem ill-advised but for wealthier individuals the tax levied on full withdrawal is only marginally higher than they would pay in drawdown on higher rate tax," the company said, adding just over 1 per cent of eligible customers had given instructions to cash in their entire pension pots.

"We would tell all of our customers to not rush to exercise the new freedoms just because they now can."

It added that some customers planned to use their cash on holidays and home improvements. One planned to buy her ex-husband's share of an overseas holiday home as part of a divorce settlement.

Canada Life said its customer enquiries this week were up a third with about three quarters wanting to cash in their funds.

"We expected our customers to be excited about the new pension freedoms," said Canada Life. It added its customers were releasing cash to finance business ventures, to help younger relatives get on the property ladder and to pay for weddings.

However, the provider said that "worryingly" only a very small proportion had used "Pension Wise", the government's free guidance service that provides information on the impact of cashing in pensions savings.

"While flexibility is an advantage for pension savers, the breadth of choice, potential tax and other implications of cash withdrawals mean professional financial advice is more important than ever to ensure that individuals make the right choice," said Canada Life.

The Treasury said Pension Wise had capacity for 10,000 face-to-face or telephone appointments a week, but would not reveal whether bookings had increased since the reforms came into force.

"It's early days, but it's very important that people are aware of the free guidance so they can find out about their options and the risks of the new retirement market," said Dominic Lindley, an independent consumer campaigner.

"The government should also be monitoring how people are accessing these new freedoms, because currently this information is not being gathered."

Ros Altmann, an independent pensions expert, said she not seen evidence of a "stampede" for cash so far, but there was a need for the government to promote Pension Wise more widely.

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