The new pension freedoms set to grace the landscape in 2015 – the key being that retirees will have the chance to access their entire pension pot without a hefty tax penalty – left a lot of people concerned that pensioners will cash in the lot and go on a spending spree. Well, it looks as if those fears could be unfounded, as according to new research only a small proportion plan to withdraw all their savings.
The figures, part of Fidelity Worldwide Investment's Class of 2015 report, show that just 6% of retirees plan to take their entire pension pot as a cash lump sum at retirement next year. The majority are actually a lot more sensible – even though 54% will take at least some of their pot in one go, 37% will only take the tax-free lump sum (or 25% of their pension pot) currently available to them.
Those that won't be raiding their pot have different ideas about how to use their savings, too. Some 23% plan to transfer their pension pot into a drawdown pension while 18% will use a combination of drawdown and an annuity, and a further 16% will take an annuity only. The same amount (16%) will defer their pension to leave it invested for growth.
The figures show that those retiring next year aren't "reckless", said Alan Higham of Fidelity, and also suggest that annuities will still have their place in the new landscape. Rates may not be that appealing at the moment but, for many retirees, the prospect of a guaranteed income will be too tempting to pass up, and using at least some of their pot for this kind of income stream will still be a viable option.
However, the survey also highlighted a worrying lack of preparation – even though the majority of next year's retirees won't be raiding their pension pots, despite the freedom to do so, many have yet to make a plan on how they'll actually get the most from their hard-earned retirement savings.
There may only be seven months to go before the changes hit, but only 17% said they have a clear plan in place and have done extensive research into their retirement income options, despite having an idea about what they might want to do. Just 15% are reviewing their existing retirement plan as a result of the Budget changes, while 26% say they're waiting to see what happens after the new rules come into effect before they draw up a plan.
There's a clear need for a lot of retirees to increase their awareness of the pension reforms, too, as just 48% said their knowledge of the new rules were good – suggesting that over half, or 52%, were unsure about the new landscape, and this lack of knowledge could hinder their ability to make the right choices.
This is why seeking suitable advice is so important. Happily, a lot of retirees realise this, with 75% of those surveyed saying they'll look to use at least one source of advice to inform their decisions – and most of those (35%) will seek the help of an independent financial adviser.
Arguably, this will always be the best way to go. Even though 21% will turn to friends and family and 20% will go to their pension provider for guidance, it's only through seeking professional, independent advice that you can be sure you're making the right decisions.
Alan Higham commented: "With greater freedom, comes greater responsibility. We urge people to start their retirement planning now, rather than waiting for the new rules to bed down. Planning your income in retirement doesn't have to be painful but it's important to engage early on and seek advice to ensure that retirement income is accessed in a timely and tax-efficient way.
"Organisations such as the Money Advice Service or The Pensions Advisory Service can be an invaluable source of impartial guidance. Likewise, an independent financial adviser can examine your entire potential income to ensure you get the best value.
"By preparing for the new pension freedom and being aware of which products best suit their individual needs, the Class of 2015 can confidently proceed, making the most of the changes and securing the future on their terms."
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