What people really think of the pension freedoms
The pension freedoms announced in the March Budget were radical. With no warning, retirees were given far more flexibility over their pension funds than they previously had - no longer would they be forced to buy an annuity, instead income drawdown became an option for a far wider range of people, as well as the ability to withdraw the entire fund, subject to tax at the marginal rate. Further changes have been announced since March, including the most recent claim that the fund can be accessed like a bank account as people will be allowed to take money out of their pension whenever they want to (although it isn't exactly like a bank account). But what have people made of the new proposals?
Given the scope of the changes, confusion was unavoidable. The government has shown awareness of this by committing to free guidance at the point of retirement, but these are big changes that will take time for everyone to understand. In a YouGov survey, over a third of respondents, and almost half of those who had heard the proposals, said that it would be vital to seek financial advice before making a retirement decision; we have seen a similar attitude, with more people now seeking advice instead of immediately wanting quotes for annuities. This is very encouraging, demonstrating that people see the potential in the freedoms and want to make the most of their money, although there was a concern that some people would be tempted to spend the fund irresponsibly.
There were differences in opinion between groups of people, though. Those with a personal pension are most likely to be affected by the proposals, and 38% of that group were pleased with the proposals because they considered annuities to be poor value, and 47% stated the importance of financial advice before making a decision of what to do with the money.
As encouraging as those figures are, there is work to be done to reduce confusion; This is Money reported that of people approaching retirement age, 41% of women and 51% of men were unclear about how the reforms would affect them. The guidance will be there to assist such uncertainty, but clear information between now and April would help people understand the changes.
This is Money also reported that 28% of people between 50 and 64 were confident they had enough money saved for a comfortable retirement, compared to 23% of younger people. YouGov's data show how much people are contributing to a pension:
There is also little difference between how much people contribute to a pension across different age groups:
However, with annuities no longer necessary for people who do not want them, it is hoped that more people will save more money into their pension. This should increase the number of younger people who are confident of having a comfortable retirement - a combination of pension tax relief, auto-enrolment and greater flexibility at the age of 55 could go a long way to defusing the
pension time bomb.
Overall, the pension freedoms have shown the need for financial advice to more people and a lot of people feel they will benefit from not needing to buy an annuity, but there is a need for clarity so there is no confusion about what the proposals are and how people will be affected.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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