The new pension freedom measures have opened up avenues that were never available to previous generations of retirees. But with greater power comes greater responsibility, as the old saying goes. New pension pathways also present new risks, particularly to the vulnerable and the uninformed.
Yet many remain sceptical about seeking professional financial advice, believing it to be overpriced and unnecessary. Those shunning guidance from IFAs may only discover the true value of advice when it is too late.
In bygone years, pensioners had little choice but to buy an annuity when they reached retirement age – and even then, many opted not to shop around, getting less returns from their hard-earned pensions. Today’s retirees are no longer forced to purchase a lifetime product. They can, if they wish, withdraw their pots in part or in full, move it into drawdown, or opt to invest it elsewhere (and, of course, buying an annuity remains an option).
These alternatives can prove beneficial, depending on the circumstances of the individual – but one year on, many remain bewildered by the changes. Recent research suggests that one in two people find the pension system too complex, and two-thirds do not fully comprehend what a SIPP entails.
“In theory, pension freedom has given retirees greater choice and flexibility, but how do they know which option is right for them?”
Combine this confusion of the pensions landscape with an aversion to advice, and many face potentially disastrous consequences. Surveys undertaken by LV= showed that almost half of the over-55s in their sample were not considering any form of professional advice, with almost a quarter distrusting financial planning firms.
“Within our industry, the actions of a select few have tainted the reputations of the rest of us, and it’s reflected in the general public’s reluctance to engage with independent financial advisers,” says financial planner Ian Little. “In theory, pension freedom has given retirees greater choice and flexibility, but how do they know which option is right for them?”
“Professional advice helps people assess their long-term goals and make decisions accordingly. There are costs involved, but it’s worth it to protect your nest egg from unnecessary risks and pension scammers. Those talking to professionals will gain a better understanding of the market and of their finances in general, and are more likely to get the most out of their pension.”
This concern has been expressed outside of the industry, too.
“The danger is that they make the choices that should be made by experts,’ said Owen Smith, the Shadow Secretary for Work and Pensions. “We have gone through a big [pension] revolution, scrapping annuities and saying take the money at 55 is a radical change and I think the public has not grasped how big these changes are and how big the consequences are. There are more risks than benefits attached.”
When clients visit us in North Shields, most wish to know what kind of lifestyle they can afford and if they are going to run out of money. Many people continue to work part time in retirement as they consider they still have something of value to add to society. As a result, the old model of retirement is changing.
At Wade Financial, we believe the pension cannot be looked at in isolation and that funding lifestyle can be achieved using many different parts of one’s wealth. The new pension world can open up great opportunities for funding lifelong dreams or passing monies down through the generations.
We offer an initial meeting with no strings attached at our cost. The benefit for you may run into thousands, helping you achieve your lifestyle aspirations. For tailored, professional advice on your pension, call us today on 0191 258 6500, or email email@example.com.