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Winterarthur warns of lump sum pitfalls

18 October 2006
Pension specialist Winterarthur Life is urging independent financial advisers to caution their clients on the implications of withdrawing a cash lump sum from their pension fund.

While a tax-free cash windfall has its obvious immediate benefits, Winterarthur also warned that many consumers were not being made fully aware of the implications it could have on a person's finances in retirement.

Since the pension reforms earlier this year, UK pension schemes have started to publicise the fact that 25 per cent lump sum payments are on offer to many savers, as the fear is that legislation could abolish this as an option in the near future.

"Pensions are designed to provide a sustainable income in retirement, which might have to last 30 to 40 years in some cases," said Winterarthur's pensions strategy manager, Mike Morrison.

"In effect, investors will only have 75 per cent of their fund left to potentially produce the same income as 100 per cent would have done."

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