The vast majority of those likely to be approaching, or in, retirement lack confidence and critical knowledge about key aspects of their retirement finances, spelling potential uncertainty ahead for thousands of retirees, according to new research from Standard Life, part of Phoenix Group.
Standard Life’s Retirement Voice study, conducted among 6,000 consumers, found that only 9% of over 65s feel confident about managing their retirement finances as a whole, and over half of over 65s (52%) feel nervous about accessing their retirement funds.
Worryingly, almost half (43%) of over 65s don’t feel they understand the pros and cons of the various options available to them to access retirement finances, and fewer than one in ten (9%) are confident about how they will access or draw down their retirement savings. Only 13% of over 65s are confident that they know what options they have to use their pension savings to provide them with an income in retirement.
Over half (54%) of over 65s are also worried they are making bad decisions around using their retirement finances.
Dean Butler, Managing Director for Retail Direct at Standard Life said: “It’s rather worrying to see so many people fast approaching or even reaching retirement and yet feeling unsure about important areas of their finances. Being as informed as possible is key to being able to make good decisions and protect your financial future in retirement. Whether it’s deciding how you’ll take money from your pension, or when to do so, you need an understanding of options available, and the implications of each on your money in retirement. At the moment seeking advice can seem inaccessible to many, and we’d like to see advice and guidance extended and made more affordable to ensure people can make well informed decisions.
“Despite this, remember that while retirement can be daunting, you don’t have to do it all alone. If you are able to speak to an adviser, Unbiased is a good place to start to find one. Otherwise, Pension Wise offers free guidance, and it’s also worth speaking to your pension provider or employer if you feel you don’t understand your retirement finances and options fully.”
Standard Life shares key tips to help you understand your retirement finances:
• When can I access my pension money? People born before 5 April 1960 can access their State Pension from the age of 66. This is set to rise to 67 and then 68 in a phased approach for people born after this date. Private (workplace or personal) pension savings can typically be accessed from the age of 55, rising to 57 from 6 April 2028.
• What are the options for taking your pension savings? If you have a Defined Contribution (DC) plan, either a personal one you’ve been paying into or a workplace one you and your employer have been contributing to each month, there are three main ways to take your savings:
Take your money as a flexible income (drawdown), which means you can set up a regular income, decide how much money to take and choose when to take it. You can start, stop, or change the payments you get at any time
Take your money as one or more lump sums, which means you can decide how much you take and when you take it.
Use your money to buy a guaranteed income for life (an annuity), which can give you a guaranteed regular income for the rest of your life. You can choose an annuity that provides for others – like a partner or children – when you die.
You could combine these options to suit your needs.
You can usually take 25% of your pension pot tax-free. Check with your provider that your pension plan offers the options you want. If not, you may need to transfer to another provider. But transferring won’t be right for everyone. You also don’t have to take your money out as soon as you turn 55, you can leave it right where it is. You can use our retirement options tool to understand which option might suit you.
If you have a Defined Benefit (DB) plan from an employer, you won’t get to choose drawdown or take lump sums as and when you please, unless you transfer into a DC scheme which is a complex decision and unlikely to be right for the vast majority of people. Instead, you’ll be paid an income for the rest of your life – usually on a monthly basis. The amount will normally go up in line with inflation. You might be able to take a tax-free lump sum, but doing this could reduce the total amount of money you get from your plan.
• How to check your state pension age & amount: The current full State Pension amount is £203.85 a week for the 2023/2024 tax year, and the current State Pension age is 66 (rising to 67 by 2028). You can check your State Pension age on the government's website. The amount you’ll get depends on your National Insurance record and how many qualifying years you have. You'll usually need at least 10 qualifying years on your National Insurance record to get any State Pension. You’ll need 35 qualifying years to get the new full State Pension if you do not have a National Insurance record before 6 April 2016. It is possible in some circumstances to top up your National Insurance record, and your state pension forecast will highlight when this is possible. You can check your how much state pension you might get here.
• How to manage your retirement finances: It’s important to think about what you’ll spend your money on when you retire. You’re likely to spend less in retirement - for example you may have paid off things like a mortgage or car by that time. But you’ll still have everyday essentials to cover, like utility bills and food shopping. You might have a list of places you want to see and things you want to do to in retirement. Once you know how much you might need, you can compare this amount to the potential value of your pension plans and other income sources. This can help you see if you’re on track for the lifestyle you want.
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