Pension Freedoms: Ignorance isn’t bliss

Financial News

Pension Freedoms Ignorance isn’t bliss

It is often said that the ignorant are ignorant of their ignorance.

And why shouldn’t they be? If something isn’t immediately obvious or well known, how are people supposed to find out about it?

Take Pension Freedoms for example.

New research from Old Mutual Wealth suggests that many people both approaching and in retirement are uninformed about Pension Freedoms, with:


  • Nearly half (45%) not knowing about Pension Freedoms at all
  • Over a third (37%) unsure of how or when they should access their pension pot

Whilst Pension Freedoms are nearly three years old, a massive lack of understanding and awareness still exists.

Fortunately, ignorance is a voluntary misfortune, so how can you ensure that you understand your pension better? And more importantly, what measures can you take to improve your financially stability in retirement?

With great power…

For those who aren’t familiar, Pension Freedoms were a major reform to the way people can access their pensions, introduced in the 2015/16 tax year. As the name suggests, pensions are now more easily accessible, giving people the opportunity to access a 25% lump sum, tax free, at the age of 55.

Pension Freedoms bring great power to pensioners, but with it comes even greater responsibility. Having wider access to a pension pot can give people the opportunity to:

  • Retire early or gradually reduce their working hours
  • Afford large purchases such as cars or home improvements
  • Plan ahead and leave larger legacies to loved ones

Whilst this allows flexible pension access to suit your lifestyle, it also carries the danger of not planning properly. Withdrawing too much, too soon, could push any future financial plans off course, or even see you running out of money in later life.

Great responsibility

According to research from AJ Bell, nearly half (44%) of over-50s choose to withdraw over 10% of their pension pot each year. This is sustainable, providing you don’t expect to see the decade out, but the biggest offenders are in the 55-59 age group. With an average life expectancy beyond 80 years old, these people are either very pessimistic about the future, or could find that over-withdrawing puts them at financial risk later in life.

This habit of withdrawing too much juxtaposes worryingly with a severe underestimation of how long a pension needs to last, with:

  • 51% of those aged 55-59 estimating 20 years or less
  • 24% of those aged 55-59 estimating 10 years or less

The risky combination of large withdrawals and little or no planning for the future means that many people are at risk of running out of money during their retirement. The life expectancy for somebody who is currently 55 is:

  • 81 for men (Source: ONS)
  • 85 for women (Source: ONS)

Tom Selby, senior analyst at AJ Bell, said: “It seems that people using the Pension Freedoms are playing a life expectancy guessing game and are often coming up short. The evidence from our research suggests many people might be severely underestimating how long their pension income will need to last for and as a result the levels of withdrawals they are choosing to make look questionably high in many cases.”

The right path

Pension Freedoms give those in and approaching retirement more choice, so it is important to make the right one for your own financial situation. There is no right or wrong way, as everybody has different goals, ambitions and plans for later life. There are, however, some key things to bear in mind that will ensure you are taking the right path:

You don’t have to go it alone: It can be tempting to do as much as possible yourself, but taking professional financial advice can add value, both financially and emotionally. According to Unbiased, those that take financial advice save on average £98 more per month and benefit from an additional £3,654 per year in retirement income.

It may pay to shop around: According to Old Mutual, most consumers choose the ‘path of least resistance’; accepting the first drawdown option offered by their provider without looking elsewhere first. Many people would balk at the idea of not shopping around for breakdown cover, their mobile phone bill or car insurance. Your pension is no different, and could be a very expensive thing to overlook.

Make sure you do it the right way: The major reform to pensions has given people more flexibility. Unfortunately, this has given more opportunities for scammers and fraudsters to strike. Remaining vigilant, not accepting unsolicited advice and verifying companies through the Financial Conduct Authority (FCA) register can keep you out of harm’s way.

For more information about Pension Freedoms, we’re here to help. Call Sarah or Bev on 0115 933 8433 or email

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.