Some 1.3 million over 55s do not intend to take out a cash lump sum as a result of the changes, to UK pension laws, compared with 1.7 million pension planners who do.
That’s according to a new research report by Avacade Future Solutions, which reveals that of those who do not wish to take action with their pension fund, 47 per cent have cited a perceived lack of understanding and confidence in the reforms as the reason.
Further challenges range from a lack of funds to a fear of running out of money in their retirement. Over one in 10 UK pension holders do not feel they have received sufficient guidance in order to make a wise decision in light of the freedoms, with 13 per cent concerned that they will make an irrecoverable mistake. A further 47 per cent are dissuaded from making any financial movements post reforms due to a lack of finance, confidence and overriding fear of making irreversible mistakes with their pension. When analysed further, the data sourced from those feeling unsure highlighted:
• 18 per cent are fearful of running out of money (227,000 individuals)
• 14 per cent don’t have enough money to benefit (176,000)
• 12 per cent feel that they require guidance (151,000)
• 9 per cent are concerned about making a mistake (100,900)
The high levels of uncertainty and fear surrounding the April 6th reforms are reflected by one-third (33 per cent) of pension holders who have chosen not to take out cash and sustain their current pension plan. However, the early stage activity of those who are 55+ and planning to take out at least part of their pension as a cash lump-sum is as follows:
• 21 per cent will put their money into a savings account (554,700 individuals)
• 13 per cent plan to travel with their cash lump-sum (353,000)
• 13 per cent will invest into other (non-property) products (353,000)
• 9 per cent will invest into their own property or pay off their mortgage (252,000)
• 8 per cent will use their money to improve their standard of living (202,000)
• 7 per cent will purchase a new car (176,500)
• 5 per cent will use the money to support their children (126,000)
• 3 per cent will purchase a new property (76,000)
• 2 per cent will donate some money to charitable causes (50,000)
• 1 per cent will educate themselves (25,000)
• 1 per cent will purchase a luxury item (25,000)
In light of the most significant changes to the pension industry seen in this lifetime, the research delivers a future-facing outlook on how generations of pension planners intend to manage their retirement prospects. Charting consumer sentiment across a national sample of 2,003 UK adults, the data unveils a staggering 75 per cent of 18-44 year olds who intend to take out a cash lump sum when they reach retirement age. One of the key findings from the report is the significantly higher levels of financial confidence amongst younger generations post the reforms.
• 90.0 per cent of 18-24 year olds will take out a cash lump sum
• 82.9 per cent of 25-34 year olds will take out a cash lump sum
• 62.2 per cent of 35-44 year olds will take out a cash lump sum
• 63.9 per cent of 45-54 year olds will take out a cash lump sum
• 60.4 per cent of 55-64 year olds will take out a cash lump sum
• 42.3 per cent of 65+ year olds will take out a cash lump sum
Across the UK, there are numerous reasons for taking out a cash lump sum from a pension pot. Of those who plan to utilise their pension in this way:
• 15 per cent will transfer their money into a savings account (2.5 million individuals)
• 14 per cent aim to improve their standard of living (2.4 million people)
• 14 per cent aim to go on holiday with their retirement funds (approximately 2.3 million)
• 14 per cent will invest into their own home (2.3 million)
• 13 per cent of those planning to use their cash lump sum will invest into non-property products (2.2 million people)
• 13 per cent want to support their children (2.1 million)
• Only 8 per cent will look to purchase a new property (1.4 million people)
• 8 per cent want a new car (1.4 million)
• 6 per cent of the respondents will support charities with at least part of their money (1 million)
• 5 per cent will look to purchase luxury items (850,000)
Lee Lummis, Managing Director of Avacade, says: “The post reforms research has reflected a nation of pension planners that are divided. With an average of 1.3 million people in the 55+ age group selecting to not touch their pension fund post the changes, and a similar number choosing to do the exact opposite, consumer sentiment is hesitant and diverse.
“As with any industry shift of this scale – especially in such early stages – the degree of knowledge about the reforms nationally is in its infancy. That said, these early findings are a vital indicator of how the industry needs to deliver in the months and years ahead. A staggering 47 per cent of those who have chosen not to respond to the reforms feel scared, unknowledgeable or financially ill-prepared to benefit from the changes, and of those who are looking to take advantage of the freedoms, the course of action is equally fragmented. The overriding sentiment that supports this report is essentially a nation hungry for better standards of living in retirement, with uncertainty in how best to achieve this. Early insights such as those in the Pension Intentions Post Reforms report are vital steers for the companies that serve ‘Pension Britain’. Moving forward, as knowledge and the impact of the reforms gains momentum, a huge responsibility lies with information providers to ensure pension planners feel confident in the range of options available to them, so as to assist with intelligent and relevant decision making. ”
