UK adults need to be “engaged with their pension” after a survey found 14% of UK retirees have withdrawn pension savings without pursuing any financial advice, which equates to around £3.2bn ($4.2bn, €3.7bn).
Over-50s product provider Saga came up with the figure of £3.2bn from an HM Revenue & Customs report; which said, in total, £23bn in pension freedoms has been withdrawn.
“Ian Browne, pensions expert at Quilter, told International Adviser: “The new retirement landscape created by pension freedoms means that if a consumer makes one false move in regard to their pension they could find themselves suffering a financially insecure retirement.
“Anyone who is toying with the idea of entering into non-advised drawdown needs to fully understand how a bad decision can influence their pension fund.
“While giving people greater freedom with their money is certainly no bad thing, we conversely need to make sure that people are engaged with their pension, so they use this freedom wisely.
“Those looking to access their pension need to understand just how important it is to get the decision-making process right and also appreciate how crucial professional advice can be in enabling this.”
Advice from others
Saga’s survey of 2,000 UK adults also found 12% would not take any advice, professional or non-professional, despite considering pension freedoms in the future.
The survey also found 10% of all UK adults would consider, or have relied on, advice from friends, family members and colleagues to inform their financial decisions – not a trained professional.
Jeff Bromage, managing director of Saga Money, said: “Obtaining advice from an independent financial adviser can cost a significant amount which can put people off and therefore is an option only the more financially secure are prepared to pay for.
“However, this advice often ends up saving people more than it costs and will lead to a more secure financial future and ultimately a decrease in the number of vulnerable savers.”
Lack of knowledge
Pension freedoms were unveiled in the UK government’s 2014 budget, allowing anyone over aged 55 to withdraw their whole pension in one lump sum, avoiding tax on the first 25%.
Saga’s findings also revealed that awareness of pension freedom remains very limited.
The majority (84%) of UK adults admit they do not know what the pension freedoms are, a figure that grew to 88% when asking just women.
While understanding increases among retirees, with nearly a fifth (19%) having an understanding of the pension freedoms.
Peter Bradshaw, director of Selectapension, told IA: ‘’It is not surprising that awareness about the pensions freedoms is low, as generally pensions are not front of mind with most people until they’re close to or at retirement, when often it’s too late to make any meaningful changes.
“Pensions freedom was all about giving personal choice and escaping the annuity trap, which tied people to a fixed income for life that they didn’t necessarily want or need.
“Some people will have put their tax-free withdrawals to good use by reducing debt, but there remains a need for awareness and education around the options for a comfortable and secure retirement.
“A single pensions dashboard could present a great opportunity to educate people about their retirement options and pension planning. To make it work, the government will need a huge public awareness campaign.”
