While imminent retirees are largely positive, welcoming the greater flexibility with which they can access their pension savings, they have expressed a degree of caution in light of the new rules, according to Prudential’s annual survey of people facing retirement.
While the biggest reason for feeling positive about the rule changes was the increased flexibility, cited by 44% of respondents, 59% had not yet taken advantage of the flexibility by altering their retirement income plans.
Another positive outcome was seen as the greater responsibility they now hold over their own retirement finances, with 31% saying they were now more likely to take professional financial advice.
Confidence lacking
The survey findings, however, suggested a lack of confidence in the government’s commitment to the newfound regime, as 49% have not altered their attitude to retirement, not feeling certain the rules will last.
Calling those retiring this year ‘The Class of 2016’, the Pru said the fact only 22% had changed their plans might reflect the fact that nearly half, or 46%, still stood to benefit from a final salary (defined benefit (DB)) pension scheme.
Final salary vs DC
The survey revealed that those with a final salary pension are the most likely to have left their retirement plans alone, confirmed by 69% of respondents; while those with a defined contribution were almost twice as likely to have changed their plans than those in a final salary scheme – cited by 37% versus 20%.
Prudential found 36% of those retiring in 2016 intend to take some or all of their pension savings as a cash lump sum, with 43% of those intending to withdraw more than the 25% tax-free cash lump sum – conceding the tax bill consequences.
New rules cautiously welcomed
Vince Smith-Hughes, retirement income expert at Prudential, said: “We are in the midst of some of the biggest changes to pensions in a generation, so it is pleasing to see that people broadly welcome the new rules. It is also understandable that, in the face of such change, this year’s retirees who have done most of their retirement planning under the old set of rules are cautious about making big changes to their plans.
“The results do, however, show that a large proportion of retirees have used the pension freedoms to access some or all of their pension savings. Doing so carries a real risk of being hit with an unwelcome tax bill or running out of money in retirement, and I would urge anyone considering taking a lump sum from their retirement pot to first seek professional financial advice or at least make use of the government’s Pension Wise guidance service.
“It is also worth remembering that money saved into a pension is there to support you later in life, and as the new pension rules become the norm and fewer people retire with a guaranteed final salary pension, there is a chance that more will be tempted to dip into their pot. Saving as much as possible as early as possible remains the best way for most people to make sure that they don’t outlive their retirement savings.”
