In the first major study to be conducted since the introduction of the new pension rules in 2015, the Financial Conduct Authority (FCA)1 reviewed the actions taken by pensioners who chose not to receive advice when accessing their pension pots. They flagged up several areas of concern.
The FCA found that many people simply took the pension income drawdown that was offered by their pension operator, perhaps without realising that they would have been well within their rights to shop around to see if there was a better deal available from an alternative provider.
Before the introduction of the pension freedoms, 5% of drawdown plans were bought without seeking advice, but since the introduction of the new rules, this figure has risen to 30%. Drawdown can be complex in its operation, so taking advice that takes full account of a pensioner’s financial circumstances can help ensure that the right decisions about retirement income are taken. After all, retirement should be enjoyed and not endured; today’s pensioners can look forward to several decades in retirement and no-one wants to face the prospect of running out of money later in life.
The report also found that in 52% of cases where pension pots had been fully withdrawn, the money hadn’t been spent but had been moved into other savings and investments. Research by Citizens Advice showed that, in such cases, one in three put their entire pension savings into a bank account.
Pensioners who took this course of action risked paying too much tax, losing out on the possible but not guaranteed investment growth they could have enjoyed if they had left the money invested in their pension fund, and in some instances lost other benefits too.
Making the right choice
Today, pensions offer flexibility. However, freedom of choice brings with it the responsibility of making the right decisions. So, if you’re approaching retirement and would like some good advice, get in touch.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
1 FCA, Jul 2017