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Pensioner ‘amazed’ as they get £79,000 state pension lump sum payout


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Pensioner ‘amazed’ as they get...

It’s not just private pensions which Britons have options with, but the state pension too. Upon reaching state pension age, eligible recipients of the payment could opt to defer it in an effort to increase the amount they get.

This was highlighted in interactive investor’s latest Great British Retirement Survey, which has been published today.

Among the 10,000 respondents, one person who deferred their pension revealed they hadn’t realised the sum they could get – illustrating the lack of awareness.

Eligible to defer under the old state pension rules, they said: “I was amazed to find that, having deferred taking my state pension, I was able to take £79,000 as a lump sum or increase my weekly state pension by about £236 per week.

“I chose the lump sum and have invested £40,000 in an ISA over two years and dabbled in investing in funds through it.”

READ MORE: Rishi Sunak plots 55% pension tax attack – ‘horrific’ rule could destroy YOUR retirement

However, while its true people who defer will receive more state pension when they eventually start receiving it, it will take time to catch up on the amount they could’ve had if they claimed in the first place. This means someone may not see a ‘profit’ from deferring their state pension until 10 or even 20 years after they eventually start claiming.

Confusion continues in the private pension sphere, the survey suggests, with the research highlighting the complexity involved in managing investments for and in retirement. They compared the relative simplicity of the final salary pension schemes of the past with the pension options available today.

One of the issues which is causing confusion for pension savers is the growing number of pension pots that savers accrue as they switch jobs and careers more often. Two thirds (66 percent) of non-retired respondents had more than one pension pot, and 15 percent of these had four or more.

One in 17 (six percent) of non-retired respondents did not know how many pension pots they had, indicating a significant risk that they could lose track of parts of their retirement income.

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The Government is in the process of creating a new pensions dashboard which is aimed at helping people keep track of their pensions and therefore reduce the risk of retirement savings being lost, but the responsibility falls on each individual to keep track of their pension pots.

Becky O’Connor, Head of Pensions and Savings at interactive investor said: “People have more jobs through working life now, which means even young people can quickly build up a portfolio of old workplace schemes as they move from job to job. One potential problem is that there may be so many it’s possible to completely forget about them, then miss out on much needed retirement income later on.”

Investors are also grappling with the responsibilities and challenges of investing successfully to ensure a secure retirement, with many regretting not taking enough investment risk earlier in their lives. Among non-retired savers, 39 percent said they wished they had had understood more about the benefits of taking a higher risk approach with their pensions when younger.

On the confusion Britons are experiencing with regard to pensions, Ms O’Connor said: “We’re seeing a flipside to pension freedoms. It’s good that people have the power to choose and manage their own pension investments, but that requires more financial education – at school and beyond – and better guidance and tools.

“Hundreds of people said they found pensions complicated and complex in their responses to the Great British Retirement Survey. There is confusion during working life when building up pension pots, then often even more when you start to access your pensions in later life.”

She said that people often find their workplace pensions confusing, as they can have trouble working out how much they and their employers are paying in, what type of scheme they have or whether they can move or consolidate their old pensions. They find it difficult to know or guess what they might end up with.

Ms O’Connor also said that there is more to retirement funding than just pensions, with some people also using ISAs, buy to let properties, and company dividend payments to help fund their retirements, adding yet another set of choices and decisions to the mix.

When savers enter their mid-fifties, Ms O’Connor said that the complexities “ramp up a notch” due to the number of options combined with the pressure to make the right choices, which she said “can be overwhelming.”

She explained: “With six main choices for how to access pensions, from flexi-access drawdown, to annuities, to Uncrystallised Fund Pension Lump Sums (UFPLS), it’s no wonder people are saying that pension freedoms are a ‘double-edged sword’.”

Ms O’Connor believes that too much flexibility is causing Britons to feel less confident they are making the right decision. She said: “The flipside of freedom may be anxiety and constant nagging doubts that you might have made the wrong decision with your pension – one that could cost you dearly. It’s very difficult to choose with confidence.

“Respondents to the survey yearned for simpler retirement options and a return to the old days of retiring and just receiving an income for life. There is a kind of nostalgia for final salary schemes. Some people are finding personal responsibility too much and stressful to manage.

“On the whole we are not as well equipped as we could be for the decisions we all now face over how to fund retirement.”

However, help is available for those in need of advice. Ms O’Connor identified Pension Wise as a good starting point, but there are other options as well, such as Investment Pathways, which designed to take some of the pressure off. There is also the option of seeking independent financial advice.

However, she said there is “no getting away from the choices we all now face with our own retirement funding, whether we seek advice and help or not.

“The buck stops with individual savers – and there’s no getting away from how scary that can feel. No one wants to run out of money in retirement, still less so because of choices they made or didn’t make themselves.”

A DWP spokesperson said: “The Government is committed to ensuring that people have the support and information they need to make informed choices about their financial futures.

“Alongside the industry, we’re investing in simpler statements and pensions dashboards to help make it easier for people to access and make sense of their pensions information, to support their retirement planning.

“We’re making guidance part of the process when savers want to make changes to their workplace pension, while free and impartial guidance is also available via Pension Wise and Money Helper.”

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BRITONS are becoming overwhelmed with the amount of options available when it comes to their pension, with the confusion leaving them unsure if they are making the right decisions. Among them, one person was left “amazed” as they learned they were able to get £79,000 as a lump sum via their state pension.

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