9 April 2015

Far from just deciding whether to buy a Lamborghini following ‘pensions freedom day’, anyone who has been saving into a DC pension scheme will still need the best possible advice on what they should do with their pension pot. It’s a big decision – possibly the biggest decision, affecting the largest amount of money they will ever encounter.

Reactions and advice

So, how are people likely to react? Our recent Investor Pulse survey found that when pensions freedom is introduced, more than a quarter of the 793 people we spoke to who are approaching retirement (aged 55+) are likely to stay invested in their pension plan, taking regular withdrawals and using part of their plan to purchase an annuity.

But an even larger number (28%) are undecided on what action they will take. And a similar percentage are going to seek alternative sources of income, although only one in five people in this age group believe they know where to get the best income-generating investments.

So where does advice come into the picture? While the free one-off retirement guidance offered by the government-backed Pensions Advisory Service should help people to understand the new pension changes as well as the tax liabilities that they could incur, it may not be enough for those who want to stay invested.

Retirement and change

What was traditionally a single event – retiring from work and being given a replacement income – has for many people become more staged and gradual as they live – and possibly work – longer. As well as this, the flexibility of how they can take their pension has widened.

The challenges for people approaching retirement haven’t changed with ‘pensions freedom’. In fact, an abundance of choice often provokes anxiety and confusion, which can result in inertia. People still want to feel secure that they can generate the income they will need, to make sure that their income keeps up with inflation, and to find ways of making their pot last for as long as they need it to.

But our Investor Pulse survey found that many feel ill-equipped to do so, with nearly four in ten of people aged 55+ saying they are worried about outliving their savings in retirement.

Managing money over time

Someone retiring at 65 today is likely to live for another 20 years. For those who do not choose the annuity route, this may mean two further decades of managing a large pot of money and trying to match their investment approach to their objectives. If ever there was a group that needed ongoing financial advice – based on a clear and evolving set of objectives, as well as counsel on tax and inheritance planning – this is surely it.


This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 09/04/15 and may change as subsequent conditions vary.
RSM-0615

Rather than saying you receive tax relief at your marginal rate of income tax, why not talk to them in the language of ‘matching’ or a ‘top up’?