New data from Unbiased has revealed that prior to the pension freedoms 35 per cent of consumers said they planned to withdraw their entire pot and either reinvest or spend it with fewer than less in five intending to opt for the traditional annuity.
According to Unbiased’s 2015 value of advice report, conducted before the new at-retirement options came into place, 56 per cent wanted to use their money on a holiday, with other popular plans including paying off the mortgage - 25 per cent - and helping family members onto the property ladder - 22 per cent.
There were just over 2,000 respondents to the survey.
In July this year, FTAdviser reported that nearly a quarter of a million payments worth £1.8bn were made to customers from pension pots during April and May, according to figures published then by the Association of British Insurers.
In the same period £1.3bn was put in to buying nearly 22,000 regular income products, with more than half of this going into income drawdown products, rather than annuities.
During the first couple of months of freedoms, savers took out more than £1bn in 65,000 cash withdrawals from their pension pots, with an average size of £15,500.
Unbiased added that the considerations at play for retirement planning have changed post freedom for members of both final salary and defined contribution schemes.
For final salary schemes pre-freedom, it said the question under consideration was when a person would retire and start receiving their pension, but now this has an additional element, whether someone should consider transferring to a defined contribution scheme too.
For DC members the considerations were historically how much a retirement pot was worth and what the best annuity was. However now, there are a number of new options which include whether or not to buy an annuity, whether or not to take a lump sum, whether drawdown is the right decision, the tax implications and if there are other options.
Karen Barrett, chief executive of Unbiased said: “What’s clear from the research is that many people are seeing only part of the picture – they are so keen on the idea of a big lump sum and full control that they forget to think about things like tax, and what happens if their pension pot runs out.
“As a minimum first step people should be seeking their free guidance from Pension Wise, but for true peace of mind they should find a financial adviser to build a solid retirement plan.”
Simon Massey, wealth management director at MetLife said: “The pension reforms have been a game changer for people approaching retirement, who can now spend their pension funds as they wish.
“However it’s essential that they consider all of the options available to them, including guaranteed drawdown, and understand the tax implications of their actions. Seeking financial advice should be a key part of the decision making process to ensure they have certainty over income in retirement.”
ruth.gillbe@ft.com
