April 2015 will herald a wealth of new changes in the pensions sector, transforming retirement options and opening up more avenues of retirement income than ever before. However, not everyone is prepared for the changes and it seems as though many pre-retirees lack the knowledge they need to navigate the new pensions landscape.
According to the latest research by Partnership, a worrying number of over-40s are unclear about the criteria for qualifying for the Government's guidance guarantee, which could mean that future take-up is very low – currently, only 5% of respondents confirmed that they will be using the service from next year.
The qualifications for guidance
The guidance is to be offered to anyone from the age of 55 who has built up pensions savings in a defined contribution scheme, but Partnership's research found that only 29% of those surveyed said that they would be eligible to use the service.
Worryingly, over half (53%) of respondents said that they didn't know whether or not they would qualify, while a further 18% of respondents categorically stated that they didn't fit the criteria for the guidance. This could mean that the option of free guidance is rejected before being properly investigated, leaving many pre-retirees without the benefit of free, independent advice.
Commenting on the results, Andrew Megson, managing director of retirement at Partnership, said: "Only 29% of people knew that they could use the guidance guarantee service, which suggests that there is a huge need for education around the new pension regime. Much of the discussion has focused on the new freedoms, but ultimately these are not going to be properly taken up if people don't fully understand their rights and responsibilities under the new system." Who to turn to?
Of course, the free guidance being offered by the Government is not the only source of advice on offer. However, it seems as though other avenues of information are also clouded in confusion, with 41% of respondents admitting that they didn't know where to go for guidance or information on pension planning.
Of those who did have some idea of where to look for help and advice, only 18% said that they would consult a financial adviser – the gold-standard of pension planning – while another 18% said that they would consult online sources. Meanwhile, one in five (21%) said that they would talk to their pension provider, while 17% said that they would ask their friends and family.
While both of these final routes are viable options, neither can offer fully-rounded, professional advice. Pension providers will only be able to give advice about their own products, which means that better-value options that are more suited to the individual's situation may be overlooked. Family and friends, while useful sounding blocks for ideas, will also not have the extensive knowledge of the pensions market that could benefit someone during retirement.
Clearly, there is a worrying group of over-40s who may fall through the guidance gap, receiving little or no advice about how best to provide an income to last them throughout retirement, which could put those dreams of a comfortable retirement at risk.
"Some people will naturally speak to their financial adviser and get the benefit of specialist advice, but we are concerned about those who may have modest pension pots and little margin for error," said Andrew Megson. "It is vital that as the industry seeks to develop products, the Government ensures people understand that they are eligible for free impartial guidance, which will help them to make the most of their retirement finances."
What should you do?
Seek advice! If your pension plans are in a mess or you simply don't know what options would suit you and your circumstances, start getting the information you need now. You can begin to fill in your knowledge gaps by reading our retirement guides to find out more about your options, and you can also consult our no-obligation annuity service to get some help and advice.
Next year, when the guidance guarantee comes into force, make sure you take up the offer and either see an adviser or speak to one over the phone or online. It's free, so there is really nothing to lose by consulting the service.
Consult our no-obligation annuity planner
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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