Holiday companies are preparing for a surge in the number of over-55s spending thousands of pounds of their retirement pension pots on cruises and flights to far-flung destinations.
From today, more than half a million older savers will be handed radical new freedoms as the start of a new “21st-century pensions system” gets under way. People aged 55 and over will be handed new powers to make one of the most important decisions of their lives – what to do with retirement savings they have spent decades building up.
Older savers will no longer be required to use their pension pot to buy an annuity when they come to retire. Instead, they can access their pots how they wish, subject to their marginal rate of income tax. They could take their pot in one go, or use it like a bank account and withdraw cash when they need it.
The new freedoms will apply to the 320,000 people who retire each year with a defined contribution (DC) pension. Around 540,000 people will be able to take control of their savings from today, according to estimates from the UK government. The reforms were unveiled in last year’s Budget, so many people have been delaying their pension decisions until now.
According to a survey by financial services firm Hargreaves Lansdown, 7.2 per cent plan to go on a holiday.
Richard Downs, of cruise ship travel specialists Iglu and Planet Cruise, said: “We have already seen a rise in 3G holidays – three generations holidaying together – and we expect this to escalate.
“At the moment, the over-65s might trade down their house to release equity, but these pension changes effectively fast-track this release, allowing people to make such life choices at an earlier age.”
Property investing, using the money to help family members and reinvesting the cash with financial firms are some of the other ways people could use their nest-egg. But experts said that, for many people, the best option will be to resist making an immediate dash for their cash. They urged people to take time to carefully weigh up their options.
Concerns have also been raised about the potential pitfalls of the new freedoms and that some people may fall prey to pension scams, or run out of money too early, or not realise the tax implications of withdrawing money from their pots.
Ros Altmann, the government’s business champion for older workers, said the move heralds the “start of a 21st century system, not a 20th-century system where the pensions industry and the government knows best” about what people should do with their money.