Many pension scheme members are in the dark about their pension and run the risk of making poor decisions as a result, according to research by Xafinity.
When asked whether they understand what pension they will get from their scheme, just 25 per cent said “yes”.
Of the remainder, 34 per cent said “no”, whilst 41 per cent said that they had some understanding.
The research also showed that nearly one half (45 per cent) of members are planning to use online research to plan their retirement, which is greater than the number of people planning to consult an IFA (37 per cent).
Xafinity warns that the fact that nearly a half of members are planning to utilise online research to plan their retirement means that schemes need to be proactive and vigilant in helping members to avoid falling victim to pension scams. Xafinity supports the government’s consultation on banning cold calls as a welcome step forward, but stresses that cold calls are not the only way for members to be targeted by the unscrupulous.
The research also highlighted a significant lack of understanding amongst individuals regarding the various options open to them at retirement: 37 per cent were not aware that they could start receiving their workplace pension before normal retirement age, 41 per cent were unaware that they could start receiving their workplace pension after normal retirement age, 30 per cent were unaware that they could exchange some of their pension for a tax free cash lump sum and 42 per cent were unaware that they could transfer the value of their pension to a different arrangement.
Despite this lack of understanding, the research showed that pension members were open to the various options available, and keen to receive more information to help them plan for their retirement.
When asked whether they might consider the various options open to them at retirement most respondents were open-minded: 71 per cent said they might consider receiving their pension before normal retirement age, but only 46 per cent might consider taking it after normal retirement age – 54 per cent would not. A further 87 per cent might consider exchanging some pension for a tax-free cash lump sum, and, 65 per cent might consider transferring the value of their pension into a different arrangement.
Paul Darlow, from Xafinity, says: “Pensions are more complicated than ever with an increasing number of options and factors for members to consider in the run-up to retirement. If members don’t understand what pensions they will get or what their options are, they may be in for a shock and look for someone to blame. Recognising this, many pension schemes are considering how they should best support members. The results of this research are food for thought, and will hopefully be helpful to pension schemes as they consider this question, especially given that the research showed that 47 per cent of respondents were keen to receive more information from their pension scheme soon to help them understand their options. The results strongly suggest that just sending out a wake-up pack prior to normal retirement age is insufficient. Instead, I believe that more effort needs to be made to engage with members in the run-up to retirement through a series of timely, engaging communications.”