Cost of living crisis: cashing in pensions to pay bills could be very risky
If you are struggling with rising living costs, it might be tempting – if you are over 55 – to dip into pension savings. The Guardian can reveal that many, who don’t even turn 55 until next year, are being targeted by pension firms inviting them to “get the ball rolling” now on releasing cash – even though experts say this could be a very bad move for some, as they may end up worse-off in retirement and might even run out of money.
The former pensions minister Steve Webb told the Guardian that while the idea of using pension savings to deal with cost of living pressures such as household bills – or pay for luxuries such as a big holiday – might be “very seductive”, there are lots of reasons why people should tread very carefully.
It was in 2015 that the government introduced reforms giving over-55s much more freedom over what they can do with retirement cash. For example, there are millions of people in their 50s and 60s who are still working, and who can – in theory, at least – access their pension pots and use the cash for whatever they like.
One of the big attractions is that the first 25% you release from your pension is tax-free.
But aside from the obvious point that this is money for your retirement, there are a lot of potential hazards, including the fact that you could be clobbered by tax, or see your entitlement to means-tested benefits affected.
Readers who don’t turn 55 for several months report receiving unsolicited letters – in official-looking brown envelopes, marked “private and confidential” – from a company called Portafina.
They are headed “good news about your pension” and explain that people can start releasing cash from age 55, adding: “It’s your money, so you can spend it however you like. And with
Read more on theguardian.com
