Letter from the Personal Finance Editor: New pension rules may be the next mis-selling scandal

The Government has handed us all unprecedented freedom to choose to do whatever we like with our retirement savings. Anyone aged 55 or over can take advantage in just a few weeks, from 6 April.

But experts are warning that it could end up being the biggest financial mis-selling scandal yet. Why? Because hundreds of thousands of people every year will be making a crucial decision about their finances without necessarily being able to make an informed decision.

The choice people will have is, on the face of it, quite simple. You can either take all your retirement cash now and do what you like with it, or carry on in what could be some complicated savings or investment scheme.

Won’t most people take the first choice? Possibly. But anyone who does could end up making a costly mistake. There are two main reasons why. First is the fact that there could be a huge tax demand on the cash – as much as 40 per cent for higher-rate taxpayers.

But second is the fact that a pension is simply a planned savings scheme with a stated intention – to ensure you have enough cash to last you through your older years.

If you don’t use the cash to buy yourself an income for life, then you could end up being reduced to living off the relatively meagre state pension.

That’s why anyone looking forward to pension freedoms should think long and hard about their future financial situation, rather than focusing on the chance to get their hands on some cash now.

i@independent.co.uk