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New research into retirement savings

Confusion still reigns over pensions freedoms

Pension adviceSavers are struggling to understand the new ‘pensions freedoms’ and are in danger of making wrong assumptions about choices they face, according to new research.

One of the most in-depth studies into the changes brought in last year tracks how people have made their retirement decisions, the emotions they experienced, and the barriers they had to overcome across a six month period.

It found that retirees felt pressured to cash in their pot or felt overwhelmed by the information on what choices to make.

The report, commissioned by The People’s Pension and State Street Global Advisers, includes 10 key questions savers should ask themselves in order to make the most of their retirement savings.

The study, conducted by independent research agency Ignition House, reveals:

·         Many people feel pressured to make a decision and access their pot, even when they have no clear need for the money. There is a fear the pot will ‘mature’ or be neglected, or the Government will change the rules again.

“I think it’s because I used to read a lot of stuff in the paper… and particularly financial forums… and a lot of people were desperate to get this money out. I thought that if I didn’t take it out it might come to an end,” said one respondent.

·         People are feeling overwhelmed by the task at hand and are worried about making the wrong decision. Six in 10 had mixed or negative emotions about the choices facing them.

“It’s a very serious matter. If I muck up at 60, I muck up for the rest of my life, I’ve got to get this absolutely correct and that’s the problem, it’s a minefield.” 

·         It is taking people much longer to make decisions than they anticipated. Over one in five of people who started the process had not made a decision and were still considering six months later. A further one in four decided to do nothing at the current point in time.

“I have been looking online to try and understand my pension choices. There is so much to read that once again I feel overwhelmed by the information so have decided to look at it again when I have more time.”

  • People are unsure about where to go for information, and confused by conflicting advice and jargon.  Only one in 10 used the Government’s PensionWise service, but those who did rated it highly.

“I emailed my provider over the weekend as they did not appear to offer a facility to withdraw random amounts of cash… Sure enough it was on the website, but under the title Flexible Transitions Account. It was not clear (to me) that it was applicable to my circumstances. Perhaps I’m being thick here.”

  • People are put off seeking help from a financial adviser despite the complexity of decision-making. Many are unsure how to find an adviser.

“I will not be seeking help as the two pensions I am looking to take 25% from are only very small and I cannot justify the outlay. It is a shame that the cost of financial help is so prohibitive for people with small pension pots such as me.”

Alistair Byrne, senior DC strategist at SSGA, said: “Information is emerging on the decisions DC scheme members are making under the pension freedoms, and this new research allows us to understand in detail the reasons why and the challenges people face.

“It’s clear there is more the industry can do to help support people to make the most of their retirement savings. We need to better articulate the choices people face – including the option to leave money in the pension scheme until it is needed – and to adopt clearer and more consistent language in our communications.”

Darren Philp, director of policy and market engagement at The People’s Pension, said: “While savers generally welcome the new flexibilities, it is clear that they are struggling to compare options and get the right information at the right time to help them make the right decisions.

“People need a helping hand to understand their options, and industry jargon isn’t helping. This highlights appropriate guidance and advice, and also for appropriate defaults.

“People feel that they are being forced into making a decision, whether that is because they fear the rules will change again or whether they believe they have to because of the way that choices are presented to them.

“But people don’t need to rush. The new retirement freedoms have given savers the power to access their pension savings earlier, but not necessarily the knowledge or tools to make the right choice for their future.

“What has been a little lost in the debate about accessing retirement savings at 55 is that that they are exactly that, retirement savings. Nobody knows how long they are likely to live, so how long they need to make their money last. The research shows that people know they can take action, and many feel they should – but for many, no action might be the best choice for now. Just because people can access their savings earlier doesn’t mean that they have to do it.”



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