82 percent of people feel positive about pension freedoms but many are still worried about the risks according to research carried out by the National Association of Pension Funds (NAPF).
Some of the risks people aged 55-70 are concerned about include:
- 36 percent worry people will lose their money in scams
- 44 percent worry people may make bad financial decisions and lose their money
- 47 percent worry people will be mis-sold unsuitable retirement products
- 63 percent worry people will run out of money before they die
The research published on 1st April reveals what pension savers aged 55-70 plan to do with their retirement fund in light of the forthcoming pension freedom reforms.
Joanne Segars, chief cxecutive, NAPF, says:
“It’s great news that days away from their launch there’s still a high degree of support for these reforms; but savers are also worried about some of the risks as most decisions now fall on their shoulders. It’s clear there’s much for the Government and industry to do to ensure these fears do not turn into reality. Our Understanding Retirement research programme will follow a group of people over the next six months to track savers’ actual experience of Freedom & Choice. Today’s research provides an early indication of their initial intentions and some of the barriers to overcome.”
When asked what they were most likely to do with their defined contribution (DC) pension savings 49 percent said they will either wait to see how things work out or are not sure what to do yet. 18 percent said they will leave it invested, 5 percent will buy annuity, 4 percent will take all as cash and 24 percent will use a combination of options.
74 percent of people who planned to access their savings said they will be leaving a portion invested and draw a regular income. Although many may not have a clear picture of what drawdown will entail as 52 percent agreed it would provide them with a guaranteed income when entering retirement. 45 percent thought their money would last until they die if they take no more income than they would through annuity and 23 percent thought there were no risks.
Half of people who have a plan for their savings intend on taking some of their taxable pension savings as cash. 27 percent said they would spend it on a one-off purchase and 67 percent plan to save and invest it.
When it comes to annuities a quarter of savers intend to buy annuity with all or part of their taxable pension savings. The appeal of this was this security of a long-term guaranteed income. One in five thought they would be able to sell their annuity if they changed their mind.
Joanne Segars, Chief Executive, NAPF, added:
“People seem to have readily embraced the concept of pension freedoms and in particular the idea of ‘drawdown’, but people are 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.”
77 percent of people said they have heard of Pension Wise, the Government’s guidance service and 23 percent said they had not heard of it at all. Of those who had heard of Pension Wise, 55 percent were not sure of the services it offers with only 22 percent saying they understood exactly what it is.
When it comes to using Pension Wise 51 percent of respondents said they would be using the service, with 35 percent saying they were not likely to use it.
When it comes to switching between Defined Benefit (DB) and Defined Contribution (DC) schemes, 75 percent were planning to stay with their DB scheme. Only 3 percent were planning to switch their DB scheme to a DC scheme and 20 percent were not sure what they planned to do.
Joanne Segars, Chief Executive, NAPF, added:
“It’s pleasing that in its early days there’s already a high level of awareness for Pension Wise, but we need to make sure using Pension Wise is the norm not the exception. We urge savers to familiarise themselves with Pension Wise and make full use of the information and services it offers. Some people are at risk of making poor decisions through a lack of information and it’s important we all work together to prevent this. We want to help savers make the most of the opportunities these reforms present and we’ve outlined three guiding principles for savers: be informed, be realistic and take your time.”
Amie Filcher is an editorial assistant at HRreview.
