‘Virtual jam jars’ for pension savings

Pension savers should be provided with "virtual jam jars" for their money which would guard against them unexpectedly running out of cash when the new retirement freedoms come into force this spring, Age UK has said.

The charity wants to see more safeguards put in place to help people control their spending when the huge shake-up of the way that people aged over 55 can take their retirement pots comes into action in April, giving them vastly greater choice over when and how they spend their money.

People approaching retirement will no longer be herded towards buying a retirement annuity with their defined contribution pension pot. Instead, they will be allowed to take money out of their pot, in a series of slices if they wish to, subject to their marginal rate of income tax in that year.

Age UK warned that with life expectancy for today’s 65-year-olds currently at about 83 for men and 86 for women, even modest withdrawals from their pension pot could mean a significant number of pensioners risk having to survive for several years at the end of their lives without any income from a private pension.

Its report, titled Dashboards and Jam Jars, calls for pension providers to develop new “pension jam jar” tools to help people to budget, control their money and reach goals for their cash. Once consumers have made a plan, specific alerts can be used if they are departing from it or at risk of running out of money or triggering a higher rate tax charge, the report said.

People should also be able to see a “pensions dashboard”, which would gather electronic data from all their pension schemes, including their state pension entitlement to help them to make decisions based on an overview of all their finances.