The majority of UK employees hold conflicting views about pension reforms, with over 82 per cent feeling ‘positive’ about the new reforms whilst many are still concerned about the risks involved.
The new reforms, which came into force on the 6th April, the start of the new financial year, give more freedom to retirees by either allowing individuals to choose where or when to invest their pension savings or to use their pension savings to finance a product or service.
The Understanding Retirement research carried out by the National Association of Pension Funds (NAPF) found that many were concerned they would run out of money during retirement (63 per cent) and a significant proportion (44 per cent) were concerned that they would make bad financial decisions as a result of the extra pension freedoms.
David Parfett, Senior Corporate Pension Consultant at Aon Employee Benefits said: “It’s clear people are recognising that with greater pension freedoms comes a greater risk for making the wrong decision. Only days after the new pension freedoms became effective pension providers are already reporting extremely high volumes of calls from customers wanting to discuss their options and that the length of these conversations is much longer than normal. People are sensibly looking to make fully informed decisions on what is a complex area for many.”
In addition, 47 per cent voiced concerns over being mis-sold ‘unsuitable’ retirement products and 36 per cent said they were worried about pension scams.
When asked about their plans for their DC pension pots, nearly fifty per cent said they would wait nearer to retirement to make a decision about their savings.
Of the fifty per cent who preferred to wait:
- 4 per cent were considering taking their pot as cash
- 5 per cent were considering purchasing an annuity
- 18 per cent said they would invest their savings in order to draw a regular income from it
- 24 per cent were planning to use a combination of these options.
The research also found that many respondents were intending to make use of guidance service Pension Wise, a finding which appears to conflict with a recent YouGov survey which revealed that three quarters of those approaching retirement had not sought professional pension advice.
Joanne Segars, chief executive of NAPF commented that whilst people were appearing to embrace pension freedoms and the concept of drawdown in particular, many were ‘struggling to understand what this will offer in practice’.
“Industry and government will now need to work together to meet growing consumer demand and develop a market for drawdown that works for those with smaller pots,” she advised.
Parfett added: “Pension providers are expecting huge take-up as a result of the new freedoms and with the number of other pension reforms still impacting the industry, capacity will need to be carefully monitored. The government-backed guidance service, Pension Wise, has stated that it has capacity for 10,000 appointments a week during April and more than 400,000 appointments on an annual basis. It will be interesting to see how many of those seeking guidance from this service will end up wanting specific advice.”
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