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82% positive about pension freedoms but many worried about risks

01 April 2015
  • 82% positive about pension freedoms but many worried about risks1
  • 63% worry people will run out of money before they die
  • 47% worry people will be mis-sold unsuitable retirement products
  • 44% worry people may make bad financial decisions and lose their money
  • 36% worry people will lose their money in scams2

The National Association of Pension Funds (NAPF) has today (Wednesday) published research findings on what pension savers (age 55-70) plan to do with their retirement income in light of the imminent pension freedom reforms.

Joanne Segars, Chief Executive, NAPF, commented:

“It’s great news that days away from their launch there’s still a high degree of support for these reforms; but savers are also worried about some of the risks as most decisions now fall on their shoulders. It’s clear there’s much for the Government and industry to do to ensure these fears do not turn into reality.

“Our Understanding Retirement research programme will follow a group of people over the next six months to track savers’ actual experience of Freedom & Choice. Today’s research provides an early indication of their initial intentions and some of the barriers to overcome.”  

Preferred options
Pension savers were asked what they are most likely to do with their defined contribution (DC) pension savings:

  • Nearly half (49%) will either wait to see how things work out nearer retirement or are not yet sure what they will do;
  • Nearly a fifth (18%) said they will leave it all invested and draw a regular income;
  • 5% will buy an annuity;
  • 4% will take it all as cash; and,
  • 24% of people said they will use a combination of these options.3

Embracing the idea of drawdown

Overall, almost three quarters (74%)4 of respondents who expressed a preference on how they intend to access their savings were planning to leave a proportion of their savings invested and draw a regular income. However, they may not have the complete picture of what drawdown will, or will not, offer them, as:

  • Over half (52%) agreed that it would provide them with a guaranteed income in retirement;
  • 45% thought if they take no more income than they would through an annuity their money will last until they die;
  • 23% thought that there are no risks with drawing a regular income from their pension pot.5

Taking and spending cash

Half (50%) of people who have a plan for their savings intend to take as cash some of their taxable pension savings. Just over a quarter (27%) of these people said they would spend it on a one-off purchase such as a holiday or a car. But the majority (67%) think they will save and invest it, only spending it gradually.6

Annuities

A quarter (25%) of savers who have a plan for their savings, intend to buy an annuity with all or part of their taxable pension savings. For 79% of these people the appeal was the security of a long-term guaranteed income. One in five (21%) of people who plan to buy an annuity thought they would be able to sell their annuity if they changed their mind.7

Joanne Segars, Chief Executive, NAPF, added:

“People seem to have readily embraced the concept of pension freedoms and in particular the idea of ‘drawdown’, but people are struggling to understand what this will offer in practice. Industry and government will now need to work together to meet growing consumer demand and develop a market for drawdown that works for those with smaller pots.”

Pension Wise, the Government’s guidance service

Three quarters (77%) had heard of Pension Wise. However, nearly a quarter (23%) had not heard of Pension Wise at all. Of those who had heard of Pension Wise, over half (55%) were not exactly sure of the services it offers and just over a fifth (22%) said they understood exactly what it is.8

Just over half of respondents (51%) were very or quite likely to use Pension Wise and 35% were not very likely or not likely at all to use Pension Wise.9

We asked all respondents to tell us how they would use Pension Wise, assuming they did use it. A third (34%) said they would like to receive support from Pension Wise via the website and two fifths (40%) said they would like to receive support via a combination of the website, a face-to-face meeting and a telephone discussion.10

DB to DC transfers

Three quarters (75%) of respondents with a defined benefit (DB) pension were planning to leave their pension savings in their current DB scheme. Only 3% of those with DB pensions were planning to move their DB pension savings to a DC scheme. One in five (20%) did not know what they planned to do.11

Joanne Segars, Chief Executive, NAPF, added:

“It’s pleasing that in its early days there’s already a high level of awareness for Pension Wise, but we need to make sure using Pension Wise is the norm not the exception. We urge savers to familiarise themselves with Pension Wise and make full use of the information and services it offers. 

“Some people are at risk of making poor decisions through a lack of information and it’s important we all work together to prevent this. We want to help savers make the most of the opportunities these reforms present and we’ve outlined three guiding principles for savers:  be informed, be realistic and take your time.”

This consumer poll was carried out as part of the NAPF’s Understanding Retirement research programme. This programme examines the nature of retirement (and the role that pensions play in it) for those recently retired and those approaching retirement in the next 15-20 years. This current phase of research will explore the impact of the Government’s Pension Freedom reforms on decision-making, the retirement journey and retirement outcomes for those making decisions in 2015. In particular it will explore the consumer journey over the next six months, with a final report published towards the end of 2015.

About the research
The NAPF commissioned Critical Research to conduct an online consumer poll of those aged 55-70 with private pensions, who will have access to the new Pension Freedoms starting on 6 April 2015. Fieldwork took place between 25-30 March 2015, and findings are from a nationally representative online survey of 850 savers.

TABLES

1 Overall, how do you personally feel about having more choice as a result of the new Pension Freedoms?



All savers with private pensions (%)

I think it’s a great idea and can’t see any drawbacks

19%

I think it’s a good idea but may have some drawbacks

63%

I don’t think it’s a very good idea but there could be some positives

9%

I think it’s a very bad idea and cannot see any positives

3%

No opinion

6%

Base

850

2And which of the following, if any, do you think will be the 3 biggest issues for savers under the new Pension Freedoms?


All savers with private pensions and aware of Pension Freedoms (%)

People will make bad financial decisions and run out of money before their retirement ends

63%

People may be mis-sold retirement products that are not suitable for their situation

47%

People may make bad financial decisions and lose their money

44%

People may lose their money through scams

36%

People will face too much choice and simply take the cash because it seems easiest

32%

People will make their choices without seeking guidance from other sources

26%

People will face too much choice and delay making decisions

10%

More people will end up having to pay for advice

10%

People will end up choosing retirement products with high charges

10%

There are no risks for savers under Pension Freedoms

<0.5%

Don't know

5%

Base

834

3Below is a list of choices you will be able to make under the new Pension Freedom. Which of the choices, if any, are you most likely to make (regardless of whether you will make a choice this year)?


Savers with DC pension pot(s) not yet in payment (%)

Buy an annuity with it /them all

5%

Take it / them as a cash lump sum(s)

4%

Leave it / them all invested and draw a regular income

18%

A combination of these options

24%

I’m waiting to see how things work out nearer retirement

35%

I’m not yet sure

14%

Base

605

4Savers with DC pension pot(s) not yet in payment but who have made a decision about what they intend to do under pension freedoms.


Savers with DC pension pot(s) not yet in payment (%), who know what they intend to do under Pension Freedoms

Buy an annuity with it /them all

25%

Take it / them as a cash lump sum(s)

50%

Leave it / them all invested and draw a regular income

74%

Base

309

5To what extent do you agree or disagree with the following statements about leaving the money invested and drawing a regular income?

I will have a guaranteed income in retirement

Savers with DC pension pot(s) not yet in payment leaving invested and drawing a regular income

Net Agree

52%

Net Disagree

26%

Don’t Know

5%

Base

230


If I take no more income than I would through an annuity, my money will last until I die

Savers with DC pension pot(s) not yet in payment leaving invested and drawing a regular income

Net Agree

45%

Net Disagree

29%

Don’t Know

18%

Base

230


There are no risks to drawing a regular income from my pension pot

Savers with DC pension pot(s) not yet in payment leaving invested and drawing a regular income

Net Agree

23%

Net Disagree

51%

Don’t Know

7%

Base

230

6In which of the following ways do you think you will use your pension cash?


Savers with DC pension pot(s) not yet in payment taking the cash

I will save or invest it and spend it gradually

67%

I will spend it on a holiday, car or other one-off purchase

27%

I will keep it for my own future health or care needs

20%

I will spend it on my family

18%

I will use it on home improvements

17%

I will use it to pay off my mortgage

12%

I will use it to pay off a loan or credit card debt

4%

Use it to move overseas

3%

I will use it to change career /set up my own business

0%

Other

8%

Don’t know

3%

Base

156

7 For which of the following reasons are you most likely to purchase an annuity?



Savers with DC pension pot(s) not yet in payment taking an annuity

It provides me with long term security

79%

It is the least risky option

32%

I am now able to sell my annuity if I change my mind

21%

It is the most straightforward option

19%

It’s the least complex option

10%

I’m not in the best of health and I can get a better deal

8%

My current scheme or provider is offering me a good rate

6%

My scheme or provider organises my annuity for me

5%

Other

2%

I wasn’t aware that I could access my pension income in any other way

0%

Base

78

8Which of the following statements best reflects your knowledge of the Government service ‘Pension Wise’?


All savers with private pensions (%)

Yes – I have heard of it and understand exactly what it is

22%

Yes – I have heard of it but not sure exactly what it is

55%

No – I have not heard of it

23%

Base

850

9How likely, if at all, do you think it is that you will use the Pension Wise service?


All savers with private pensions (%)

Very likely

16%

Quite likely

35%

Not very likely

24%

Not at all likely

11%

I am not eligible to use Pension Wise

1%

Don't know

14%

Base

850

10In which of the following ways would you prefer to receive support from Pension Wise?


All savers with private pensions (%)

A face to face meeting at a Citizens’ Advice office near you

18%

A telephone discussion

8%

The website

34%

A combination of these

40%

Base

850

11Which of the following options best describes what you are most likely to do (regardless of whether you are likely to make a choice this year)?


Savers with DB pension pot(s)

Leave my pension in the current defined benefit scheme

75%

Move it to a defined contribution scheme

3%

I don’t think I qualify for Pension Freedoms.

2%

Don't know

20%

Base

358

Notes to editors:

The NAPF is the voice of workplace pensions in the UK. We speak for over 1,300 pension schemes that provide pensions for over 17 million people and have more than £900 billion of assets. We also have 400 members from businesses supporting the pensions sector.

We aim to help everyone get more out of their retirement savings. To do this we spread best practice among our members, challenge regulation where it adds more cost than benefit and promote policies that add value for savers.

Contacts:

Lucy Grubb, Head of Media and PR, NAPF, 020 7601 1726 or 07713 073023, [email protected]

Eleanor Bennett, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]