Pension Cash Released, But Put in Cash Accounts

New figures from HMRC show that people have released money from their pensions totalling over £10 billion since the “Pension Freedom” changes to legislation two years ago. But there are fears that much of that cash is just being put into cash accounts, where it is not being used immediately but also not earning any interest (as it was in the pension scheme). As inflation starts to rise, this means that the retiree’s pot of money is effectively shrinking. reports

“Research by Fidelity International has revealed that four in 10 pensioners are putting the money they withdraw under the new freedoms into a cash account… The lump sums had been used for a wide array of things from holidays to paying off debts, but the most popular choice by far was to put the money in a current account – 41% of the people surveyed admitted that was where they had put the money… That’s a problem with the money as rising inflation combined with the pitiful interest rates offered on cash means your money is going to be losing spending power in a cash account… “Rising inflation and low interest rates is a toxic combination for retirees,” says Maike Currie, investment director at Fidelity Personal Investing… “Beyond the rise of day-to-day living costs like food and fuel, inflation also wreaks havoc with your pension savings. It erodes the spending power of future interest payments and chips away at your capital.” … Fidelity’s research also showed that nearly three quarters of the people who had accessed their pension savings were worried about the effect of low interest rates on their pension pot.”