Budget has changed behaviour

Announcement of pension freedoms has changed people’s retirement behaviour.

Behaviour Consultant

Following George Osborne's budget announcement, the number of Portafina's clients seeking advice has increased by more than 80%.

The pension reforms have highlighted the diversity of retirement options available, such as whether the retiree would like to receive a guaranteed income, remove money as needed from their pot, take a lump sum, have death benefits for their spouse, or their fund to remain invested for a later date. Those approaching retirement will have a wider array of options than before, and while in the past the At Retirement clients wanted the best annuity rates, there is now a huge shift to seeking advice instead.

It is interesting to note that prior to the announcement, the FCA found that 60%[1] of people at retirement age would stay with their existing pension provider for an annuity, often without exploring alternatives that potentially could offer greater income, flexibility or benefits. Since then, sales of annuities and shares of annuity providers have dropped, with Legal & General reporting a 40% decrease in sales in the first quarter compared to the same period last year[2].

The chancellor's Budget created concern that the annuities market could cease to exist entirely, but their fixed-income guarantee means they are still the best option for some people. However, post-Budget, people who thought they were decided on an annuity are now seeking advice explaining all their available retirement options before selling their pension fund to a provider.

Jamie Smith-Thompson, managing director at Portafina, says: "The change in people's attitudes highlights one of the best aspects of the Budget, which is that more people have realised annuities are not the only option. For those who want control over their pot, more flexible options such as Income Drawdown may be more appropriate."

The following graphs show the percentage of people wanting advice (grey) and best-rate annuity broker services (red). The pre-Budget data is between November 2013 and February 2014, with the post-Budget data showing April and May 2014.

 

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