Pension savers urged to take advantage of little-known investment rule
People building up their pensions have been urged to take advantage of a little-known rule about where their pots are invested.
Retirement experts at Path Financial have encouraged those saving up for retirement to read up on how their pension investments work.
David MacDonald, founder of Path Financial, told Express.co.uk: “Most people are unaware that you can move your pension, so it aligns more with your ethics, and that should be what people are considering as well as how much is in it.”
He encouraged people to think about switching to more eco-friendly investment pots as these can make a big difference for the planet, adding “the more people keep saving into green pensions the better”.
A person may choose to transfer their pensions into another pot for several reasons, such as to bring together several pots or to move their money into a scheme offering better returns.
The think tank, The Resolution Foundation, suggested in a recent report that pension savers should be allowed to borrow part of their pension pots if they need the funds for their pre-retirement living costs.
A report from the group set out plans for savers to be allowed to take the lesser of £15,000 or 20 percent of their pension pot’s value if they need the funds now.
Mr MacDonald weighed up the pros and cons of the proposal. He said: “No one can touch their pension until they are 55, going up to 57, so there would be a degree of independence and freedom to choose what to do with your own money.
“But on the other hand, no one can squander their pension early if it is kept inaccessible until 55. In a way, you are protected from yourself, and protected from the temptation to keep taking from it for luxuries rather than essentials.”
Rowan Harding, financial planner at Path Financial, said allowing people to dip into their pensions could be a help to those who have a serious illness and need the funds to pay for their treatment.
But she also warned that a key aspect of pensions is that they are sustainable. She explained: “Your pension is meant to last; the most common question we receive about pensions is, ‘have I got enough in it?’
“So it’s more of a risk that people won’t have enough to sustain their retirement lifestyle, and taking out of your pension puts you more at risk of poverty when you’re much older.
“While there are always extenuating circumstances, mixing general finances and your pension is not advised.”
The Government unveiled plans last year for a pensions ‘pot for life’, which would allow a worker to ask their employer to pay their pension contributions into an existing pension pot. The Government is currently consulting on the proposal.
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