The analysis found that more than 62,000 people accessed some of their pension* for the first time during a six-month period last year, but 34% haven’t taken any form of financial advice. This worrying trend is echoed by the FCA who found that 91% of UK adults did not receive any financial advice in a 12-month period**.
Advice is widely considered to be financially out of reach for most, which may explain why 21,000 people accessing a record-average pot size of £120,000 did so without ever having spoken to a financial adviser.
By doing so, thousands of retirees each month run the risk of making dangerous decisions about what to do with the large sums of cash they suddenly have access to, which could eventually lead to them running out of money too early and having to fall back on family members or the state just to cover expenses and the cost of living.
The ABI’s Director of Long-Terms Savings Policy, Yvonne Braun, commented: “Pension freedoms gave consumers many more options and flexibility in their retirement, but with greater choice comes greater risks. To see levels of advice hitting new lows is disturbing and risks leaving thousands of elderly consumers facing poverty later on in their retirement. New problems require new solutions, and empowering consumers to make the right decisions for them is our priority at the ABI which is why we are publishing new proposals on how to communicate with customers today.”
Whilst the average drawdown pot size of £120,000 is the highest on record, the ABI also found that the proportion of customers reaching retirement with more than £250,000 also doubled in the space of just two years (to 11%).
While the advice gap remains, and grows in some cases, the pensions industry has an important role to playing in helping customers make retirement decisions. This is why the ABI is publishing two communications guidance documents at its annual Long-Term Savings Conference today.
Further Information
The first document, ‘Tailored Risk Warnings’, focuses on raising awareness of the risks that consumers face at different ages as they approach retirement. It recommends that customers receive three different forms of risk warnings at ages 50, then 55 to 70, and then at age 75. The different warnings cover scams and contributions for the younger groups, and then tax, life expectancy and power of attorney risks for the older groups – for example.
The second document, ‘Communications Through the Lifecourse’ focuses on the opportunities during different stages of the customer’s life. It highlights the need to speak to new 18-25 year olds differently to other age groups, in the same way that adults in their 50s will need to receive different messages as they draw closer to their retirement. By tailoring the messages they receive, firms should be giving consumer more confidence to make smart decisions about their future, based on the stage they’re currently at in their saving.
Commenting on the publication of the documents, the ABI’s Head of Long-Term Savings Policy, Rob Yuille, said: “The days when nearly everyone got a guaranteed income with their pension savings seem like a distant memory. There’s now a need for a more tailored approach to the communications we send to customers to ensure that they’re aware of and informed about the new risks and opportunities that our evolving retirement ecosystem presents.
“It’s great that people are reaching retirement with greater amounts stashed away in their nest eggs, but we have to make sure that they’re armed with the information they need to make smart decisions about how to use it in the run up to, and during their retirement.”
See the documents here.
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