Close to three-quarters of financial advisers believe some of their clients will wholly cash out their pension when they are given the freedom to do so from next April, in a new survey which will fuel arguments on both sides of the debate on the radical reforms.
A survey by Intelliflo among 227 advisers found 73 per cent believe that being able to withdraw a full pension pot will be of interest to some of their clients, with 26 per cent stating it will be of interest to many.
That so many will see at least a portion of their client bank cashing out will be seen by some as evidence that the rules could see many spend through their savings and fall back on the state. Conversely, that only a quarter think more than a minority will do so will embolden those who back the personal responsibility at the heart of the changes.
In terms of how the lump sum might be used, 11 per cent thought it will be invested in property, 28 per cent suggested it will be used to pay off debts, while 30 per cent said it would go towards improving lifestyles, such as through holidays, a new car, or household goods.
Pensions minister Steve Webb caused a storm earlier this year when he said the freedoms meant some savers, especially those with smaller pots that would get poor value from an annuity, for example, might well cash in their pension to buy a Lambourgini.
During a lively debate at the House of Commons earlier this week, Mr Webb defended the proposals against a broadside from his shadow Gregg McClymont on the potential for poor outcomes by saying he would be surprised to see “queues of Lamborghinis outside benefit offices in North Lanarkshire [where Mr McClymont sits as an MP]”.
Mr Webb conceded that “an awful lot of people with tiny pension pots who will just cash out” and argued a “set of people at the top will go straight to regulated financial advice”. He said, though, the key was for the “right people” in between to take up the offer of guidance.
Only a fifth of advisers surveyed by Intelliflo believe product providers have responded well to the government’s recent pension reforms, however most acknowledge the industry was taken by surprise by the radical pension changes announced in this year’s Budget.
More than 60 per cent recognised that the industry was caught by surprise and it will take time for new products to be developed, while around 17 per cent of advisers thought providers have been slow to respond to the opportunities the new rules offer.
Asked about the role for annuities from April 2015 when the new flexibilities are implemented, 31 per cent said they will need to offer better value if they are to survive, while 27 per cent reckoned they still have an important role to play in retirement planning.
Around 40 per cent reported increased business for their firm as a direct result of the government’s new pension rules.
Jo Gilbey, Intelliflo’s marketing director, said: “Our survey highlights the challenges faced by product providers in responding to the opportunities presented by the government’s new rules.
“While annuities still have a place, advisers are expecting new products that will offer alternatives to people who want more certainty around income during retirement.
“The survey also shows there is concern that significant numbers of people may not be able to resist the opportunity to spend their tax free lump sum well before retirement, leaving them with reduced funds to provide adequate investment to fund later life.”
peter.walker@ft.com
Additional reporting by Ashley Wassall
