Some 77% of people approaching retirement in the UK have never sought professional financial advice in relation to their pension, according to a new survey.
However, at the same time, only 17% say they understand pension income drawdown, which is set to become a more mainstream source of retirement income when the new pension freedoms come into effect in April.
This data suggests there is a significant danger that if people do not understand the new pension freedoms and do not take advice, they will withdraw their money too quickly and be left, in the longer term, relying on state benefits.
A new survey of 943 people aged 45–65 conducted by YouGov on behalf of Old Mutual Wealth shows that 35% of people have never sought any kind of help or advice about their pension savings. A total of 17% have spoken to their product provider or have done their own research online, 16% rely on help from friends and family. Including those in the age group already retired, only 21% have taken advice from a professional financial adviser. The full breakdown of the data is provided below.
Encouragingly, 40% of 45-65 year olds have already heard of the Government’s new ‘Pension Wise’ guidance service even though it is yet to launch in full. Pension Wise seeks to help those approaching retirement to understand the new rules around accessing pension savings that come into force on April 6. The service will play an important role in signposting retirees to regulated financial advice where appropriate.
Financial advice and planning can have a real impact on the level of income people have in retirement. Retirees today that saw a financial adviser at least once before retirement and had a target income have an actual income that is 49% higher than those that did neither*.
Paul Feeney, chief executive of Old Mutual Wealth, says: “The new pension freedoms are great news because they give people control over how they can access their retirement savings but they could be a disaster without financial advice. We all know that with greater freedom comes greater responsibility and the Government has placed the responsibility for a secure and prosperous retirement firmly on to the individual. People are reticent about seeking advice, they shouldn’t be. An hour’s meeting with a financial adviser can make all the difference and in the new pensions world it is even more important.
“I think there will be a flood of demand for professional financial advice after the reforms come in, as people focus more closely on their pension savings. 40% of people have already heard of the new Pension Wise guidance service but this is only set to grow and I think it will prove to be an effective feeder service for full financial advice.
“All advisers within our Intrinsic network are on the Pension Wise adviser directory and we are expecting to see a significant increase in demand for retirement income advice from people using this service who will realise they need full and personal advice in order to make the most of the new flexibilities.”
Michelle Cracknell, chief executive of The Pensions Advisory Service, says: “This research provides evidence of why the guidance is so important. People struggle with the retirement option choices and do not necessarily know how or where to access help. Guidance is the start of the journey that helps people know the information they need, the questions to ask and where to go. We believe that guidance will help people understand their options, and as a result, some may choose to take advice as they will understand the importance of the decisions that they will be making.
“It is encouraging to see that people have heard of Pension Wise and we hope that this awareness grows when the first wave of retirees experience the guidance.”