Pension contributions, especially occupational or private plans, are usually invested in the markets to increase the chances of securing a comfortable retirement. However, in recent years, pensioners have had more freedom in the management of their funds, which has led a number of Britons to take potentially risky measures.
Recently, NerdWallet carried out a study of 1,612 UK adults with occupational or private pensions. The results showed that, more than six years after the introduction of retirement freedoms, the vast majority of retirees still do not have access to the retirement advice and guidance available to them when making decisions. of retirement, preferring to go it alone.
Research has shown that only 16% of people aged 55 and over have sought independent financial advice to discuss their retirement options, while only 14% have used the government’s free Pension Wise service for retirement advice. .
This low use of financial advice and guidance comes despite the fact that 75 percent of all respondents who have a pension said they did not feel confident about sorting out their retirement planning without seeking professional advice. .
NerdWallet explained that the retirement freedoms, introduced in April 2015, gave individuals more flexibility when taking their retirement money, but in doing so, it was also more incumbent on them to take control of their planning. of retirement.
In light of this, many retirees choose to keep their funds in cash, potentially limiting their prospects.
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The same research found that more than one in 10 (11%) of people with a pension who are 55 years of age or older have withdrawn money from their workplace or personal retirement and the have placed in a savings account or cash ISA instead. Fewer respondents ended up investing their money in stocks and ISAs (nine percent) or real estate (eight percent).
NerdWallet noted that it is possible that these decisions were the right thing to do, it is also possible that the respondents took a different approach, having sought advice on the best course of action for them after considering their long-term financial goals, risk appetite and the tax consequences of retirement withdrawals.
Richard Eagling, Senior Pensions Expert at NerdWallet, commented: âRetirement freedoms have proven to be very popular since their introduction in 2015, but, by opening up more options, they have also put retirees under immense pressure. so that they make the right decisions when withdrawing money from their pensions.
âSadly, very few people have access to the advice and guidance available to them, leaving them vulnerable to making decisions that could interfere with their own retirement dreams. “
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Unfortunately, as inflation continues to rise, all funds left in a cash account are strained. Tim Leonard, a personal finance expert at NerdWallet, explained how risky it can be.
He said: âOur investigation showed that a number of people were withdrawing money from their pensions to put it in savings accounts and cash ISAs. In direct investing with this approach, people may not be aware of the risk that their money will keep pace with inflation and the purchasing power of their cash may decline over time.
âGiven that our survey shows that 75% of those who responded did not feel comfortable managing their own pension fund, we can only assume that the general public is generally unaware of the risks involved. he could take in transferring his from the investment element and the potential implications of withdrawing money from a pension jar. “
Recently, the FCA has taken steps to address these uncertainty issues. On November 25, the FCA opened a consultation on making default funds available for non-occupational pensions.
The regulator said: âCurrently, consumers who buy and save in a non-occupational pension must choose their own investments from an increasingly wide range of options. This complexity can make it difficult for some consumers who do not take advice from choose investments that meet their retirement needs They may end up with investments that are not sufficiently diversified and with too much or too little risk Increasingly, more and more consumers are now buying non-occupational pensions without advice.
âIn addition to poorly chosen investment baskets, we fear that some consumers are holding cash in their non-work retirement. In the long run, liquidity risks being eroded by inflation. Investing in growth assets rather than cash is likely. to provide a larger retirement pot at retirement.
Becky O’Connor, Head of Pensions and Savings at Interactive Investor, welcomed the proposals, noting that it was “really important that investors who want to do it themselves feel free to do it, while those who need a helping hand can also access it. She also expressed sympathy for savers who are overwhelmed but said, “You don’t have to be an investment whiz to use a self-invested personal pension.”
She continued: âIt is true that there is a huge choice of funds, trusts, ETFs and direct stocks for those who wish to make their own choices. Investors may also face choices between different classes. assets, geographic areas and themes.
âThis is why access to good research and good education is so important. For some confident investors, this ability to make their own informed choices, based on their own goals and timelines, is the appeal of a SIPP.
âOn the cash flow risk, in general, SIPP investors do not collect cash. They hold a slightly higher proportion than ISA clients and interactive investor trading accounts. They can hold cash for various reasons, for example, to seize opportunities in the market. “
While the proposed changes have been widely welcomed, other experts have warned that certain areas of retirement planning or financial planning should not be overlooked. Helen Morrissey, senior pensions and pensions analyst at Hargreaves Lansdown, said the proposals “are positive [step] with the potential to bring real innovation “, but we must not forget professional support.
She said: âWe must not forget that the provision of high quality advice is also of vital importance in enabling people to make more informed investment decisions throughout their retirement planning journey. People’s needs change and with the right education we can ensure that they are able to make the appropriate continuous changes to ensure that they reach retirement in the best possible financial position. â
A similar sentiment was shared by Andrew Tully, CTO of Canada Life, who said: âHelping unsuspecting clients make good investment decisions, not just holding long-term cash pension funds. term, are sound suggestions from the FCA. However, it is important that these changes have minimal impact on the advisable market, where advisers help clients make investment choices that are tailored to their personal circumstances.
âIt also seems a little odd that the FCA is suggesting that default funds should include lifestyle. Many clients will switch to direct debit when they begin to retire, and lifestyle may not be an appropriate choice in these circumstances. “