Some 68 per cent of people accessing their pension are not using a financial adviser to help them plan for their retirement, research has shown.
According to research from Canada Life, which polled more than 500 over 55’s who have used the pension freedoms, two-thirds (66 per cent) of savers also didn’t shop around before buying a pension product - either annuity or drawdown - from their pension provider.
Introduced in April 2015, the pension freedom rules opened up the way savers could access their pension cash, leading to hike in drawdown sales in lieu of annuities.
The freedoms, which did not include defined benefit pensions, also led to an increase in transfers out of so-called 'gold-plated' retirement plans as people sought to get access to their cash.
Canada Life’s research, put together to mark the upcoming fourth anniversary of pension freedoms, also showed that two in five (40 per cent) consumers who accessed their pension for cash for the first time were still working.
Some 60 per cent of withdrawals were then invested in cash, while holidays, home improvements, and new cars were also popular uses.
According to Andrew Tully, technical director at Canada Life, there is no doubt that "pension freedoms have been hugely popular".
In the main people appeared informed and were making sensible choices, he said.
But he warned: "But some behaviours appear embedded and some poor decisions are being made. These behaviours are likely to continue without the right interventions.
"There are clear tax implications from withdrawing money from a pension, and yet even with a very high level of awareness which indicates risk warnings are working, it doesn’t appear to have sated the appetite to grab the cash and put it into low or no interest bank accounts.
"This could lead to poor tax efficiency, as well as having a detrimental impact on estate planning unless the funds are required in the short term."
According to recent research from the Financial Conduct Authority, a third of the UK population might have needed advice in the past 12 months but didn't access it.
Mr Tully also stressed that the lack of shopping around continued unchecked despite efforts from the regulator to influence consumer behaviour.
He said: "A significant majority are simply taking the easy route and sticking with what or who they know when looking at an annuity or a drawdown product.
"This could simply be driven by easy and swift access to tax-free cash, the obvious lack of engagement with a financial adviser or simply overconfidence and lack of awareness of the options available."
According to research published last year by Retirement Advantage – now part of Canada Life - pensioners buying income drawdown from their existing pension provider lost up to £780m in the process, due to consumer inertia at point of retirement.
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said buying an annuity or a drawdown product was one of the biggest decisions savers will ever make in their lives, "so it would be prudent to take professional advice to make sure they’re doing the right thing, as quite often it’s irreversible".
He said: "It would be interesting to know if any of them at least used Pension Wise – my guess is also very few."
Mr Chan also noted that the fact that 60 per cent of the cash withdrawals were subsequently reinvested in bank/savings accounts was "quite worrying".
He said: "It makes little sense from a tax perspective and also, as we know, returns from cash savings are at their all-time low, so they run the risk of inflation eroding their capital over time."
maria.espadinha@ft.com
