Will you use Pension Wise? Or, perhaps a more pressing question, have you even heard of it? According to research from Portal Financial, a large number of respondents have no intention of using the Government's free retirement guidance service, and only 3% know what it's called.
The survey, of those aged 55+, found that 77% of respondents have no intention of using Pension Wise. They're less likely to use it as they get older, too, with 32% of those aged 55-59 planning to use it compared with just 16% of over-65s. Lack of communication appears to be a key issue, and could go some way to explaining the unwillingness to seek the guidance offered: as well as only 3% knowing what the service is called, a further 43% thought The Pensions Advisory Service was the name of the new body, rather than an existing organisation that will help provide the guidance.
"Our results indicate that the Government has not done enough to explain the presence or benefits of Pension Wise," said Jamie Smith-Thompson of Portal Financial. "Although guidance is not a substitute for regulated advice, we urge the Government to increase awareness of Pension Wise so people approaching retirement at least know the option is there. With the pension freedoms now imminent, it could prove disastrous if people make decisions without being aware of the range of options available."
Whether or not you plan to use Pension Wise, one thing is key – you should always seek suitable advice. This is even more important given the new freedoms introduced, as there are now far more ways to turn your pension savings into a long-term income, and making the right decision is crucial.
Unfortunately, research from Partnership has found that just 31% of the 40-70 year-olds surveyed have spoken to anyone about the upcoming reforms, a figure that rises to 37% among the 56-60 age group and 33% among 61-70 year-olds. Even those who have spoken to someone are more likely to speak to their partner than a provider: 44% had a casual conversation with their partner about the changes, while just 16% spoke to a pension provider or financial adviser.
This suggests a worrying lack of engagement, and it's even more concerning given that these are the people who will be the first to experience the impact of the reforms. Knowing how to effectively secure a retirement income is vital, but the figures suggest that many of those approaching retirement won't have the knowledge they need to make informed decisions.
But, even those who know about the reforms and are seeking to take advantage of them may not make the right choices. Income drawdown is becoming an increasingly viable option, but specialists are warning that relying solely on this method could mean you run the risk of outliving your pension fund.
According to calculations from MGM Advantage, a typical 65-year-old who plans to use drawdown to match the retirement income of an annuity will have a 50/50 chance of exhausting their pot. For example, a £100,000 pension fund could generate a guaranteed income of £6,000 a year from an annuity, which would last as long as the individual lived. However, using drawdown (based on a 5% annual return after charges) would provide the same £6,000 annual income only until the age of 92, after which the money would run out.
Andrew Tully, of MGM Advantage, commented: "With the new pension freedoms, the choices at retirement will get a whole lot more complicated. There is a lot of talk about using drawdown, but retirees need to be made aware there is a real risk that their money could run out early.
"While many people may think they won't live long enough to worry about their money running out, the statistics show this is not true. Healthy people approaching 65 have a 70% chance of being alive at age 86, which is average life expectancy, and a 50% chance of living to 92. That's like flipping a coin to find out if they will run out of money in retirement."
Why run the risk? Seeking advice is key, and even if you do want to make the most of Pension Wise, make sure to seek independent advice, too. Consulting our annuity planner could be a great place to start, and if you know your options, you'll have a better idea of what to do next.
Try our 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.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.