Reforms bringing savers ‘pensions freedom’ will come into effect next Spring, allowing thousands of workers approaching retirement full access to their pension pot.
In March’s Budget Chancellor George Osborne said that savers should be trusted with their own hard earned cash, and that “no one will have to buy an annuity” from April 2015.
Savers who wish to secure their retirement income will be free to buy an annuity, and those who wish to access their pension pot as one lump sum will also be allowed to do so. They will also be permitted to access part of their pension on retirement and leave the rest in their scheme to drawdown at a later date.
The measures faced some criticism from industry commentators who called into question the practicality of allowing pension savers immediate access to funds which had to last them up to three decades.
A recent study by Investec Wealth should assuage these concerns however, as results show retirees have few ambitions to blow their hard saved lump sum on frivolous purchases; eight out of 10 respondents said that they were going to take a cautious approach to spending in retirement.
Seventy per cent of workers aged 55-64 admitted they do intend on spending a larger proportion of their savings in the years after they immediately retire, either on a holiday or home improvements – but say that this plan is one that has been in place before the pension reforms were announced earlier this year.
More than half of those questioned said they would be holding some cash back for the cost of long-term care.
Compulsory Advice
In order to guard against the risk of irresponsible money management in retirement, Osborne’s Budget also revealed that pensioners will have to have a compulsory meeting with a financial adviser on retirement.
Advisory firms believe this obligatory assessment will be positive for the industry, with nine in 10 saying it will boost the demand for advice, according to Fidelity Fundsnetwork.
Jon Everill, head of Advisory Services at FundsNetwork, said the radical reforms announced in the Budget have had and will continue to have a dramatic effect on those nearing or at retirement age.
“By providing more options and flexibility in the way pension assets are used to provide income in retirement is fantastic news for consumers,” he said. “As a result, there can be little doubt that many more people will require financial advice from a professional in the future which is hugely positive for the advice community as a whole.”