Lifestyle pensions are designed so that investors can buy annuities later in life to enable them to access their savings for purchases when they wish. Now that The Government has made it possible to draw from pensions at any time, these plans could effectively become obsolete.
Barclays has predicted that this could see the annuities market shrink by two-thirds by 2016.
Hargreaves Landsdown head of corporate research Laith Khalaf said such funds may become effectively useless. "Absolutely everybody who is invested in a these types pensions scheme should dust it off and take a close look at it; the fund may no longer be fit for purpose," he said. "This applies to pension plans set up with previous employers too. Likewise every company in the land should review their default strategy in light of the Budget."
The statement from Hargreaves Lansdown also cast doubt on the assumption that people would from now on draw from their pensions in one lump sum. It pointed to Australia, where savers have been able to draw a lump sum at the equivalent tax rate for several years but where very few take this option as soon as it is available.
Hargreaves Lansdwown head of pension research Tony McPahail said: "Pension investors have earned the trust of the Government by prudently saving for their future, they are unlikely to turn into reckless spendthrifts just because they hit retirement. If people can access their pension funds whenever they want them, they are highly likely to keep their money tucked up inside the tax shelter until they need it."
