The Association of British Insurers (ABI) revealed that the first week of new pension freedoms has been quite a busy one, with high but manageable, levels of inquiries flowing into providers.

This early feedback confirms what many HR experts guessed; there is a lot of focus from savers on how to release cash from their pensions.  With this said, providers’ experiences in the first few days of these freedoms have underlined things customers should consider when they want to cash out their pension.

The first thing to consider according to providers, are the implications.  While many people think they’ve made up their minds about their money and what to do with it, customers should still consult Pension Wise, as well as their provider to understand what could happen. 

Additionally, customers should understand that if they turn their entire pension pot into cash a hefty tax bill could be incurred.  This would, ultimately, reduce the amount of money available to them.  People using UFPLS to release several lump sums should really expect to see emergency tax imposed on these payments.  They will then need to reclaim from HMRC.  The way the tax system is designed, tax payment happens upfront and if there is an over-payment it is corrected later.

Finally, customers with a valuable guarantee in their pension are actually required by the Government to take financial advice prior to cashing in if their safeguarded benefits are worth at least £30,000. 

Many human resource experts feel that this is definitely a new era for pensions and that this is kind of an exploration period for customers.  At the same time, customers shouldn’t feel pressure to make any sudden decisions.  Companies are taking their time in explaining options to individual savers, even those who think they’ve made up their minds already.