Lockdown restrictions are ending. “Freedom Day” is beckoning. If you’re like the 77% of over 55s we surveyed, you’ve got big plans to fund in the next 6 to 36 months. Plans big enough for you to dip into your pension pot? Or are there other ways of raising finance that might be better suited to your circumstances?
We’ve been doing our research and a number of people are telling us that they have big plans for a significant spend once the country finally emerges from all Covid restrictions. According to our survey, in the next 6-36 months, 77% of the over 55s have plans to spend over £15,000 on big plans or big-ticket items. Top expenditures include improving or renovating the home (38%), buying a new car (25%), taking an extended holiday (21%). What’s more, nearly two thirds (64%) would even consider spending sums exceeding £30,000.
Perhaps this is understandable and even welcome as “Freedom Day” dawns in England followed by the rest of the UK. However, a significant portion of respondents told us they would be using the pension freedoms introduced by the government to fund their spending by dipping into their pension pot.
This begs the question – Is dipping into your pension to fund your next spend in retirement your best option for raising funds? When we asked further about financing their plans, almost a third of respondents appeared unaware of the likely tax implications, saying they didn’t know or that there would be no tax to pay. However, this is not so. For example, if you decide to take lump sums, only 25% of each withdrawal is tax-free, but the rest is taxed at your highest income tax rate, encompassing all your other income.
See all your options in one place
Perhaps before dipping into your pension pot, one of your most valuable assets as you get older, and potentially being taxed on it at your marginal rate, you should review all your options and compare other ways you may have of raising future funds?
To help older consumers be greater informed of their options and make decisions about funding their plans with confidence, we’ve launched an online tool that shows users different ways they might choose to fund their new projects – we simply call it the Funding Comparison Tool.
Intuitive and accessible, the tool asks you a series of questions about your priorities and gives you a quick overview of your main funding options all in one place. It summarises the main potential plusses and minuses behind each option, informing you before you make your next steps. It compares using your savings vs borrowing through an unsecured loan, taking on Equity Release vs taking cash from a flexible pension, and more.
So, should you dip into your pension pot to fund your Freedom plans, or should you take a little time to review your options, and see what other ways you could raise the funds you need?
Explore the alternatives and get a fresh perspective. Get started on the Funding Comparison Tool and have all your options ready for your next big spend.
The Funding Comparison Tool is not intended to provide personal financial advice and any action taken will be your own responsibility. If in doubt, please seek advice from a professional Financial Adviser.
Free2 Limited (trading as free2) is an Appointed Representative of RS Consumer Finance Limited (RSCF) which is authorised and regulated by the Financial Conduct Authority (the FCA). free2 is a credit broker, not a lender, and will only offer loans from RSCF – an offer of credit is subject to status and affordability. Terms & Conditions apply. www.free2.com