Pension Freedom  

Hundreds of thousands use pension freedoms without advice

Hundreds of thousands use pension freedoms without advice

More than a quarter of a million pension savers are being left to fend for themselves when it comes to retirement decisions, the Trade Union Congress has warned.

Analysis by the TUC has shown that in the first-year of pension freedom 300,000 savers in defined contribution schemes withdrew cash lumps sums without getting financial advice.

Another 60,000 bought annuities without consulting a financial adviser while a further 11,000 purchased drawdown contract.

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In April 2015 changes introduced mean savers in defined contribution schemes no longer had to automatically buy annuities which guarantee them a lifetime income.

Retirees are having to make a range of complicated decisions about their likely lifespans, investment plans and choosing between complex, often expensive, pension products.

The TUC fears many low- and middle-income savers are at risk of running into hardship, buying the wrong products or falling victim to scams because financial advice is expensive and hard to come by.

It has called for the National Employment Savings Trust to be given the power to offer retirement income products, so  savers can have access to low-cost retirement income products.

TUC general secretary Frances O’Grady said: “‘Pension freedom’ may sound great on paper. But it is not liberating to leave hundreds of thousands of people to fend for themselves in what is now a very complicated and expensive part of the pensions market.

“The inevitable result, if nothing changes, is a rise in scams and more older people suffering hardship.

“The new pensions minister must set Nest free to offer the sorts of retirement products that are so clearly needed by low and middle-income savers.”

At the moment there are 12.3m people saving in DC workplace pension schemes, including around 3m in Nest.

By 2030 this is expected to reach 14.7m, as auto-enrolment gives millions more savers occupational pensions.

There is a DWP consultation underway on whether to allow Nest to offer retirement income products and make it easier for other schemes to transfer their members into Nest.

Andrew Pennie, head of pathways at Intelligent Pensions said: "The TUC is right to be concerned about the 80 per cent of people accessing their pension without proper advice.

"Retirement income choices are complex – mistakes are easily made, often irreversible and typically expensive.

"We are only 18 months into pension freedoms and are already seeing evidence of poor decision making - I fear many more mistakes and errors are yet to be exposed and over time we will see far more retirees suffer unnecessary financial loss and retirement hardship."

He branded DIY retirement planning "dangerous".

"There is no doubt we need to find a way of improving access to and use of guidance and advice. In a pension world where we insist someone with £30,000 of defined benefit pension benefits must take advice before being allowed to transfer, why do we allow people with defined contribution pensions, irrespective of size, to simply do what they want?"