Many people are still failing to grasp the “complexities” of pension freedoms when they access their retirement pots.
Andy James, head of retirement planning at Tilney, was commenting on a Canada Life survey which found 68% of UK citizens accessing their pension are not currently using a financial adviser.
He told International Adviser: “This figure is concerning and is in line with previous surveys.
“The numbers have been pretty consistent since pension freedoms came in.
“While some individuals doing their own thing will have a clear understanding of all the issues, it has been clear to us when we do give advice on accessing pensions that the majority have failed to grasp the many complexities involved.”
This finding comes weeks after IA reported that financial advice has been snubbed in around £3.2bn ($4.2bn, €3.7bn) of pension withdrawals.
New world of retirement investing
Verona Kenny, head of intermediary at Seven Investment Management, said to IA: “The drawdown at retirement stage is an increasingly complex area and, without some form of plan to guide people through it, retirees are in danger of chipping away too much at their pot – a fear at the forefront of many people’s minds.
“Advisers are best positioned to help clients navigate this journey and manage their retirement in the same way they have helped them save and prepare for it.
“However, in order to attract people to them, advisers need to ensure they have the right infrastructure, such as a centralised retirement proposition, in place to support clients at this crucial stage.
“Those who don’t will find themselves redundant, as the backdrop that has held true for decades shifts meaningfully to a new post freedoms world of in retirement investing.”
Client behaviour with pension freedoms
Kenny was also commenting on a Canada Life survey, which questioned 505 over 55s in the UK on how they have used the pension freedoms.
The report found two-thirds (66%) didn’t shop around before buying a pension product (either annuity or drawdown) from their provider.
Some 92% of respondents said they knew they would be taxed on withdrawals above the tax-free threshold, and 87% said they knew what that tax payment would be.
Nearly one in four (24%) continue to pay into a pension having accessed at least one retirement pot while leaving the rest invested.
Around two in five (40%) consumers accessing their pension for cash for the first time were still working.
Only 10% of those surveyed regret their decision to access their pension.
Reasons for accessing pension
The survey also found that 60% of withdrawals have been invested in bank and savings accounts.
This clearly shows “a significant number of people are under the impression that having the money in the bank gives them more security and access than in a pension wrapper”, said Alex Shaw, director of Progeny Wealth, to IA.
Austin Broad, group head of advice at AFH Wealth Management, told IA: “The risks of accessing pension savings without taking advice are numerous.
“From unexpected tax bills, to unknowingly giving up attractive benefits or opting for the wrong retirement income product.
“The pension freedoms, while welcome, have opened a new world of pitfalls for retirees to stumble into.
“The most concerning issue it that, without careful planning, retirees could run out of money as financial goals are easily mismatched with longevity.”