Only a third of pension savers (35%) feel confident enough to make basic retirement decisions such as choosing how to access their pension when they reach retirement age, according to new research from TPT Retirement Solutions, one of the UK’s leading providers of workplace pensions schemes.
The survey of more than 2,500 defined contribution (DC) members found that a large proportion remain unsure about how to best deploy their savings when they retire, as nearly two fifths (39%) don’t know what they will do with the majority of their pension savings at retirement age.
Since the pension freedoms legislation came into force in April 2015, people with DC pensions aged over 55 have been free to choose how to use their savings, with the ability to make a tax-free withdrawal of 25% of their pot. Most pension savers will opt for a combination of drawing their pension down over time, taking some of it as a lump sum, or buying an annuity. Before the legislation, pension savers had been forced to use their pension to purchase an annuity.
TPT’s research revealed that despite the lack of client confidence, four in five pension savers (79%) did not plan to use a financial adviser to make retirement decisions. In addition, the least engaged and confident savers are also the least likely to seek professional advice. Therefore, change is needed to support those approaching pension age as many savers have a significant gap in knowledge and readiness for their retirement.
Considering such confusion around retirement planning and decisions, the survey shows that six in ten (62%) savers support the potential introduction of a new pot-for-life style system. The new system currently being considered by the Government could make it easier for people to plan for retirement as they would only have to manage one pension pot throughout their career.
Similarly, 68% of savers expressed an interest in the option of a default decumulation-style drawdown product that would provide pensioners with a steady income for the rest of their lives. This shows the desire among pension savers for automatic support systems due to their lack of confidence in making decisions about their retirement savings.
Philip Smith, DC Director at TPT Retirement Solutions, comments: “Our research shows many people are worried about what to do with their pension when they come to retire. Lots of people don’t know what to do with their savings but are also unwilling to pay for professional financial advice. The launch of our new DC offering later this year should help address these issues in making decisions for retirement easier. It is encouraging to see wider industry reforms are similarly focusing on this, and that the scheme savers themselves are in support of such measures, such as the introduce of a pot-for-life system. These changes can help drive pension engagement by giving individuals the agency to make choices over their retirements, and hopefully build pension savers confidence.”
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