13th November 2017
Latest findings from the Financial Conduct Authority (FCA) indicate that since the pension changes were introduced in 2015 to provide consumers with more flexibility at retirement, twice as many pension pots have moved into drawdown than annuities. The proportion of drawdown bought without advice has risen from 5% before the freedoms to 30% now, and the vast majority (94%) of people who went into drawdown without taking financial advice, accepted the drawdown scheme offered by their existing pension provider.
Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education, guidance and advice in the workplace, believes that financial education and advice is key to helping consumers make informed choices about their pension drawdown scheme.
Watts-Lay comments; “The ramifications of people failing to understand the retirement choices available to them and, as a result, blindly selecting the wrong product for their life savings is a huge problem.
For example, consumers need to know that there could be a difference of up to £10,000 over a decade between the most expensive drawdown provider versus the cheapest, according to research by consumer group, Which?
It is crucial that consumers shop around to ensure that they select a retirement option that best suits their needs. This means finding a solution that enable them to access the right amount of cash as and when they want it, and for as long as they need it
For example, a 65-year old man now has a 50% chance of living to 87 and a woman of the same age has the same chance of living until she’s 90, so making retirement savings last is key.”
He continues; “Too many drawdown products have been bought without financial advice, which puts consumers at huge risk of paying too much tax. Making sure that your selected option is as tax-efficient as possible is vital to maximising your retirement income.
But it’s not always easy for people to understand the decision-making processes involved. It can be confusing trying to understand the often overly complex structures and fees of drawdown schemes, let alone decide which one best suits your needs.
Very few individuals have the specialist skills required to undertake this evaluation, let alone manage the investment risks involved, which is why I wholeheartedly agree with the financial watchdog, the Financial Conduct Authority, that poor choices can mean consumers miss out on investment growth, being exposed to investments that are too risky for them or running out of their pension savings sooner than expected.”
Watts-Lay adds; “Uninformed consumers are taking risks with their hard earned savings by blindly selecting retirement products with little, if any, understanding of their choices. They are also easy targets for fraudsters attempting to scam them out of their life savings – situations that we want to avoid at all costs.
Research suggests that between April and June this year, more than a fifth of individuals over the age of 50 were reportedly targeted by potential scammers offering unsolicited pension advice or investment opportunities.
The fact that almost nine in 10 (88%) consumers selected a bogus pension’s advice offer when shown a mock advert means that it’s time for the financial industry, together with employers, to tackle this serious issue head on and educate and support consumers so that they can fully understand all their options at-retirement.”
He concludes; “Employers need to take action by making financial education a priority for employees so that they understand their options and the implications of their decisions in the lead up to, and at the point of retirement. This should then be followed by financial advice to provide individual tailored support.”
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