The industry regulator, The Financial Services Authority has warned advisers to educate clients about the pitfalls of cashing in their pensions. The FSA have been rumbling about this subject for some time now but it has come to the fore because of the Government's plans to simplify pensions and make them easier to cash in.
In 2006 anyone with a pension of £15,000 or less will be able to take their whole pension fund in cash. Whilst three quarters of the amount will be taxed, it means more money could be released.
The FSA has warned they will be watching firms that help people unlock their pensions - perhaps they should sort this one out with the Government before they start blaming the industry for something it hasn't done yet!
Our View
For some people, taking some or all of their pension early draws the line between poverty and being able to make ends meet. For these people, having flexible pensions is worthwhile.
But, our concern is that with new State benefits available to people on low incomes, saving for or cashing in pensions could be detrimental.
Our view is that everyone thinking of taking out or cashing in a pension needs independent advice. It could save you thousands!