For those of you who are lucky enough to be approaching retirement or already there, you might be thinking about getting your hands on a nice little lump sum.
Last year the government opened up the way to billions of pounds of money that had previously been locked in pension pots.
The pension changes mean that rather than having to buy an annuity with the money, you are free to do what you like.
As the pension’s minister said at the time: you can spend the money on a Lamborghini if you want. Although with the luxury car costing something like £200,000, that might not be possible for most of us. The average pension pot is more like £27,000.
So should you dip in to the pension pot for a treat? Between April and the end of September last year nearly 400,000 people did. They took out literally billions of pounds from funds that were designed to give them a regular income for the rest of their lives. At one point £27m was being taken out each day!
What worries me is that some people are using this money to buy new cars or go on a cruise and then what happens when they are older and need to pay for heating and food?
This is particularly important to bear in mind because the Department for Work and Pensions issued a Deprivation of Assets clause in the new pension freedoms’ legislation. This basically means that by taking pension benefits early for non-pensions’ related activity, state benefits in the future could be restricted or not paid at all.
I met a newly-retired pensioner in a posh shop in Sheffield recently and he was treating himself to a fancy new hi-fi with his pension pot. I couldn’t help pointing out to him that the music system wouldn’t keep him warm in his old age.
No individual investment advice is given, nor intended to be given in this article and no liability will be accepted in respect of any action you make take as a result of reading this article. If you are unsure you are urged to take independent investment advice.