Study reveals that half of UK adults misunderstand new pension rules.
Research by The Wisdom Council* reveals that a significantly high percentage of UK adults misunderstand their options at retirement.
The study, carried out on behalf of St. James’s Place, aimed to understand how attitudes have changed a year after reforms to the UK pension system were introduced – and how these are influencing retirement planning and behaviour.
The chancellor’s decision to trust over-55s to use their pension how they like was welcomed by champions of freedom and choice; while critics argued that the move would only serve to increase the risk of people making poor decisions.
Worryingly, despite widespread media coverage and government initiatives to raise awareness, only 49% of those questioned said they understood the pension changes and the impact on their choices. Moreover, over 40% of respondents remain confused about the way pension cash withdrawals are taxed.
The paradox of choice
Participants in the study were often confused about what their options were, the age at which they could access benefits, and even how much their pension was worth. For example, fewer than half of those identified as having lower financial sophistication were aware of how much was in their pot and what funds they held, or could correctly identify what proportion of a pension was accessible at retirement.
Almost all of those surveyed said they wanted more information and guidance on pensions; but the study also showed that, for some, retirement is an event predicated by fear – and that this fear might be driven, in part, by a lack of financial advice.
Just 3% of those who said they were afraid of what the future holds have sought help from a financial adviser. In contrast, 45% of those who said that they were looking forward to retirement have benefited from financial advice.
For those looking for help and information, the government’s free Pension Wise service is arguably a good starting point. But Ian Price, Divisional Director at St. James’s Place, maintains that “general guidance provided by government should not be seen as a replacement for face-to-face financial advice”.
Regardless of whether financial advice had already been taken, almost all respondents (94%) consider it to be at least ‘quite important’ before or at retirement, and more than half (52%) think a financial adviser would be their first stop for pension advice.
Those approaching retirement often talked about the ‘fear’ of stopping work and the importance of having ‘something to do’ to keep them mentally and physically active.
Many want to continue working and volunteering in their later years, but will spend less time doing those things. Almost half of respondents (47%) plan to reduce their hours and take a glide path into retirement; in other words they do not see retirement as beginning at a specific point in time.
“This so-called ‘grey glide’ has been observed in other research, but the extent to which it was revealed in this study was particularly striking,” says Price.
Perhaps unsurprisingly, individuals exhibiting a high level of financial sophistication are more than twice as likely to be interested in their pension, have a greater propensity to seek financial advice, and also expect to retire earlier with a higher annual income.
However, more than half of the less financially sophisticated group claim little or no interest in the topic of pensions and retirement. That lack of interest leads to a lack of knowledge and to insufficient planning, which risks undermining their confidence in the future.
*‘The Impact of Pension Freedoms on Pre-retired Holders’, The Wisdom Council, January 2016. A total of 380 people completed the survey.
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