PensionsOct 30 2014

British public lacks understanding of pension reforms

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Pension changes are not understood by 71 per cent of Britons, making them easy prey for pension scams, according to a survey by the chartered accountancy firm HW Fisher & Company.

The study revealed that 77 per cent of respondents do not know the difference between pension liberation and pension freedom.

Pension liberation is the unregulated practice of unlocking pension pots, but with tax penalties. Those aged 55 and over are given the flexibility to spend their pension savings how they wish through the pension freedoms announced in the Budget.

It was admitted by 13 per cent of participants that they know nothing of the reforms, while 58 per cent know only the basics and 29 per cent understand them well.

In the face of the reforms, 74 per cent reported a feeling of empowerment through the changes allowing them full control over their pension pot, while 26 per cent felt daunted.

As opposed to seeking professional advice regarding what to do with their freed-up pension pot, 52 per cent of respondents stated that they plan to manage their money themselves and keep their money invested.

Confusion could breed a greater number of pension scammers looking to prey on retirees once the new rules come into force in April next year. David Breger, partner at HW Fisher & Company, warned pensioners to be wary of any out of the blue or too good to be true opportunities, and encouraged people to seek professional advice to make the most of their money.

Petra Griffiths, director at Psg Financial Solutions Limited, said, “Even some of my long-standing customers who we have sent information and discussed the changes with don’t fully understand them and the tax implications involved.

“The main concern is that they will spend their pot too quickly, not calculate how long they will live, and eventually be in poverty in retirement. Men tend to be more risky with money, so wives could be left with nothing if their husbands spend their pension pots too quickly. Scams also pose a problem, but I haven’t seen any yet in my customer base.”

Andrew Dawson, independent financial adviser at Coast To Coast Financial Planning Services , said, “I wouldn’t say that the general public are unaware. Headlines in the news about retirees using their pension pot to buy a Lamborghini have caught peoples’ attention.

“There is greater risk of people parting with their money if they have greater freedom to access it, but I don’t think that pension scams are much of a concern yet.”