You will remember that back in 2015 the then Chancellor, George Osborne, introduced a number of freedoms for people who had ‘Defined Contribution’ (DC), ‘Money Purchase’ or ‘Cash Balance’ pension schemes.
The main change was that people aged 55 or over who had saved into any of these types of pension no longer had to buy an annuity when they retired. Instead, they could tailor when and how to use their pension savings, including taking it all out in one go or as a number of lump sums, keeping savings where they were or to buy a life-time or fixed term annuity.
At the time, many in the industry were fearful of how these increased freedoms would affect scheme members. By granting such liberties, would there not be a large number of savers who would blow their entire pension on a round-the-world trip or flash car by the time they were 65?
New research reaches some alarming conclusions
New research conducted by Ignition House on behalf of The People’s Pension and State Street Global Advisors has arrived at some alarming conclusions. In the report, Philip Brown, Director of Policy and External Affairs B&CE, says in particular:
The majority are sleepwalking into retirement, with their life choices being driven by present circumstances rather than carefully considered financial planning about the long term.
Of deep concern are the decisions individuals are making regarding the 75% of their pot that isn’t taken as a cash-free lump sum. Now that it’s been over five years since the new pensions legislation came into force, the first cohort are reaching the point when they need to live off their DC pension money. Yet the research indicates that many are simply not equipped to master the choices available to them or to understand the risks they may face in the future.
This research is the latest part of a longitudinal study that follows a representative sample of 80 people who were amongst the first to be faced with the new pension choices. It found that members showed little understanding that there will be an extended period – perhaps 20 years – when they may not be able to work and would therefore need adequate finances in place to support them. Many seemed unwilling to face up to the challenges, preferring to bury their heads in the sand rather than confront the facts. They were focused on living for today in the hope – and belief – that everything will all somehow work out fine in the end.
Hoping things will turn out fine ….
Hoping things will turn out fine in the end is not, of course, a financial planning strategy we would recommend. The report calls for the financial services industry to consider how best to support pension savers in their decision making so that they don’t run out of money in retirement.
Pensions and financial planning can be very complex and we understand that many people will feel daunted by the range of choices available to them. That’s exactly why we are here. Our financial advisers are experienced and knowledgeable and dedicated to providing the best advice to you in language that you understand.
To make sure that you don’t ‘sleepwalk into your pension’, please do contact us for advice and support.
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