Spending your pension pot should not be a guilt trip;- it should make you happy!

Andrew Tully – a good man!

Poor old Andrew Tully of Canada Life, what a terrible job he has – trotting out the ABI party line on behalf of Canada Life – Andrew- you are the kindest and most decent of chaps, but you make no sense to me at all!

The latest “research” from Canada Life reveals that more than half the country is feeling skint and looking to raise money by working more, selling tat on ebay or – heaven forbid – tapping up their rainy day savings – including the money in the pension pot.

I will give Andrew his soapbox for three paragraphs

Canada Life technical director Andrew Tully says: “The cost of living crisis is causing the majority of people to re-evaluate their financial situation, and with inflation set to reach double-digits later this year, we can expect to see more individuals tightening their belts and looking for additional ways to supplement their income.

“However, with the research showing that over one in 10 adults are looking to access their pension early, we, as an industry, need to ensure that these individuals are aware of the tax and cost implications of doing so. Not only will your pension have to stretch further into the future, you are likely to pay tax and you can also trigger the Money Purchase Annual Allowance.

“The use of emergency tax on initial withdrawals may mean people initially receive less than they were anticipating, and have to wait for HMRC to pass on the remainder at a later date. It’s worth keeping mind if you plan on topping up your pension in the future the MPAA restricts the amount you can to £4,000 a year, which includes both you and your employers’ contributions.

“While it’s hard to predict how long inflation will remain high, it’s vital that we encourage people to look beyond the here and now, and look at their finances over the medium to long-term. For those concerned about their financial future, speaking to a financial adviser is a sensible step. These professionals can help give a holistic view of your personal circumstances, ensuring that you are on track to achieve your financial goals.”

People want their money back – don’t stop them!

There are an estimated 900,000 people over 50 and in the UK who are out of the labour market. They have had enough, whether it’s long covid, the furlough feeling, being on an NHS waiting list  or just a disinclination to return to work, many of us seniors are “off-games”.

Not only are we choosing not to work, and therefore contribute to our workplace pensions, but we are also looking to ask for our money back, being 55+ and having the pension freedom to do so.

We are doing this because our rent is going up, our shopping is costing more and the amount of money we’re stuffing into our gas and electricity meters is going through the roof.

But it seems that asking for our money back isn’t going to be as simple as we thought

  1. We have to worry about something called the Money Purchase Annual Allowance which may restrict us from saving more than £350 pm into a pension in future – that’s a real blow! Anyway, it’s unlikely that the MPAA would be triggered if small pots were being cashed out, you can cash three pots  less than £10k in them without falling foul of this obscure tax-charge.
  2. Then we’ve got to worry that we may have to pay tax on some of the money we take out of our pension , “may…..”
  3. Then we may have to pay more tax than we should and wait to get the tax back because of “emergency tax” – which we’ll get back as a tax refund shortly after,
  4. And then we’ve got to remember that we’ve now blown some or all of our savings. We’ve let our family down, we’ve let Canada Life down, we’ve let the ABI down but most of all we’ve let ourselves down.  We’re making the exercise of pension freedoms into a guilt trip!

Of course , Andy Tully’s arguments are total nonsense. People have the right to the utility of their pension savings from 55 and for those struggling to pay fuel bills, the MPAA, income tax, emergency income tax and the benefits of delay are minor bumps in the road.

  • Tax is a feature of life, actually most low earners can manage a drawdown without much tax by using the pension tax free lump sum and their personal allowance
  • Universal credit is not impacted by the first £6k of liquid cash
  • Pension credit is impacted by deemed income from unspent pension pots
  • The amount hard-up people can save in a year comes nowhere near the MPAA
  • As my recent blog on the impact of small pots shows, taking a small pot early will not make much difference to taking it late. State pensions and benefits are what matter to low earners, pots are a side-issue (especially for women).


So what’s the point of me having a go at poor old Andrew Tully?- I hear you ask.

It’s because every new report that is issued by the pension industry warning about early access, is another brick in the wall to people getting to their money.

The point of drawing down money from the pension is to pay the gas and electricity bill, to meet the vet fees, to fix the boiler, to put petrol in the car and to pay the housing costs not met by the local authority. In short- to pay the household bills that worry us all sick.

Andrew Tully (and Henry Tapper) do not have to worry about these bills, but there are millions of people of our age who do. And millions of people only started saving  during the staging of auto enrolment (2012-18). The saving of 8% op AE band earnings + growth of fund may have given us a combined pot of £10K to £15k and we may have a little more in old pensions we’ve forgotten about and may find on the pension dashboard, but most of the people who want their money back have not got enough in their pots to seriously trouble the scorers (HMRC).

It is the natural propensity of savers to sit on their money, in Australia they have had to legislate to get people to spend their retirement cash. The downside of spending from pension pots to meet huge bills is very small indeed.

Because the end game for most people with small pension pots is not financial self-sufficiency in retirement. It’s a state of dependency on benefits which will see them through. And it has always been that way. Auto-enrolment has not changed anything much other than giving that little buffer that allows this group of people to bridge to state pension age using their savings.

The utility (the happiness) that the cash from these pots brings is enormous. It represents the ability to carry on being what we want to be , through these tough times till we get to 67 when we get a proper state pension , maybe pension credit and a lot of fringe benefits from being senior. It brings untold financial relief and household happiness.

And when they get to 67, happy days!. They have no deemed income from pension pots and every chance that taking into account disabilities, caring and a less than full NI record, they will get pension credit.

Do I feel offended by people spending their pension pot in the years coming to retirement – not a bit – go ahead. You are playing by the rules – just as the people who’ve bagged a £1.8m LTA were playing by the rules. Good luck to them too! Dem’s the breaks.

So, in summary Andy Tully, your  homily to all the people who aren’t rich enough to pay for financial advice but who have enough money saved to enjoy it when they need it, is so much rhubarb.

We don’t need to encourage people to take their money when they need it (now), we need to make it easy for them, not deliver sermons on deferred gratification and self-reliance in later life

Do I feel offended by the patronising lectures of those who put ideology before utility – of course not .  I’m as tough as a stick of rhubarb. But I’m not going to shut up because the pension industry wants to protect people from non-existent risks and deny them pensions happiness!

I’m not ashamed to be the only person writing this stuff right now – because I’m not the only person thinking it! This needs to be said because accepted wisdom on not accessing pots to pay fuel bills is just wrong!

We want people to be productive and carefree , not worried and careworn. 55% of us have no pension, let’s congratulate the 45% who do! I take my cue from my favorite pig (not Peppa)!


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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9 Responses to Spending your pension pot should not be a guilt trip;- it should make you happy!

  1. Brian G says:

    Mind-blowing in your self contradiction about a wage for life!! Andrew Tully is not writing about people cashing in small pots he is writing about and aiming at people who may reach self sufficiency in retirement. He is writing to those whomay be able to get by without accessing money now for pleasure now rather than need. He is asking them to think long term before they make a withdrawal that may not be necessary. As you rightly say, cashing in a small pot now to make ends meet now may well be not just necessary but total common sense. But we should not assume everyone who makes withdrawals now needs to. And believe me (or don’t) many people who I speak to and explain mpaa and tax charges on withdrawals change their mind sharpish if they are making withdrawals for something non essential now. And as uou know I am no longer advising, merely guiding.

    • henry tapper says:

      The people who have their eyes on self-sufficiency have a superfluity of support! They have IFAs , on-line modellers, tax- calculators and goodness knows what!

      But what of the people who have smaller pots, pots unlikely to make much difference to pensions but a lot of difference to well-being 2022-4?

      My reading of Andrew’s comments, which I have seen in Actuarial Post came with a link talking about people cashing in pots to meet cost of living https://www.actuarialpost.co.uk/article/cost-of-living-cause-many-to-plan-to-access-pensions-earlier-21083.htm I think the comments – (presumably in a press release) were also published in Corporate Adviser.

      Either way, they aren’t helpful. As I say time and time again, we should be encouraging people to take comfort from their pension saving. It may be the last line of defence for some (and certainly if you have cash in banks and ISAs, where it is more liquid use that first), but it is often the only savings people have. I would much prefer to have a diminished pension pot than have a payday loan or a maxxed out credit card.

    • henry tapper says:

      As regards the work you do Brian, you know I am full of admiration! Please do not think I am dissing it. But I hope that my arguments help you and your colleagues to look kindly on those who want to use their pension to pay household bills – even if it’s earlier than SPA.

      • Brian G says:

        Fair play Henry. We look kindly on everyone who calls us. I don’t disagree at all with the use of small pots where that is the only pot they will ever have to piss in. I was more trying to suggest that Andrew is most likely to be referring to people who might take a knee jerk reaction, cash in part of their larger pot for short term expediency, and not realise the long term consequences.

  2. ros altmann says:

    I am totally with Andrew. A pension is not spending money for your 50s or 60s, it’s there for your 80s or 90s. Unless you are seriously unwell of course and not expecting to need it later. Those under 55 can’t access the money, just being over 55 should not be a short-term bonanza without expert guidance to explore all other options. Pensions are precious. And the hysteria about cost of living crisis seems to lose sight of the probability that inflation will not keep on at current levels for energy bills.

  3. Pingback: Ros Altmann – “are pension pots insuring against living too long – or a means to pay the bills?” | AgeWage: Making your money work as hard as you do

  4. henry tapper says:

    Brian – herein the problem. The research conducted by Canada Life was designed for advisers who might be considering Canada Life – so the conversation turns to MPAA and suchlike/ But it gets picked up as commenting on cost of living issues which primarily impact non-advised people, the people you deal with. For those with pots of £150k +, Andrew is right, but where is the guidance for people with small pots?

    What is happening is we are conflating those with nugatory pots with the mass affluent so that everyone is told to stay put and not get “hysterical”. I don’t see any guidance coming out of MaPS, DWP , TPR or FCA about small pots and the cost of living crisis. Even Martin Lewis hasn’t dared to go into this field of thorns. But someone must – the PLSA may be doing a session on this in October but we need to be having this discussion now. Sadly – the Minister is away and may not be in post for long, there is a notable absence of direction. Is everyone on holiday?

    • Brian G says:

      One of the problems with our regulatory regime is it encourages a lack of action whenever something MIGHT be construed as giving advice. Maps cannot take an initiative in this area unless they are clearly given permission to issue guidance about the use of small pots to cope with the cost of living crisis.so therefore when people call the helpline we speak to them and do a mini fact find. We explore potentially relevant ways where they might be able to get by without cashing in pensions and if they are on benefits we make it very clear that they should clarify 100 per cent what effect it will have if they are on means tested benefits by taking some or all of their pensions. If they have a real small pot we explain how thqt does NOT affect the amount they can pay into a pension in future. If this is not available we explain how UFPLS And we then explain the different ways of accessing their pensions. We never block people and we are very even handed.

  5. Negative budgets are a term which I’d never heard in practice, until the last couple of years. Poverty, absolute poverty is now common. People who just do not have the income to meet their basic needs. Forgetf the appalling cost of credit for poor people, for many there is no credit availabls. If yiu were faced with the choice of no heat, no food or no house, woukd you still say the pension is tnit to be used but only ere for 20 or 30 years hence?

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