Following the recent Budget, which proposed that millions of would-be pensioners will have unprecedented access to their pension, new research has shown that thousands of people are not comfortable with managing the risks this will involve.
The survey from MGM Advantage, who provides a range of retirement income solutions, conducted after the Budget, revealed:
- 28% of over 55’s said they were not comfortable taking on the risk of managing their pension so that it provided a suitable income throughout their retirement
- In contrast 26% of people said they were “very comfortable” managing their pension in retirement
- Whilst 41% were “somewhat comfortable”
- 50% of people said that budgeting for the whole of their retirement was a concern, indicating that at least half of the over 55’s are being responsible and thinking about the long-term
The main concern of people over 55 seems to be running out of money. This is certainly echoed by critics of the Government’s proposals, many of whom are worried that people will draw down too much from their pension in the early years of retirement, leaving them with insufficient income in the later years, when costs can rise, especially if some form of care is needed.
Aston Goodey, Director of Sales and Marketing, MGM Advantage commented: “With all the hubbub around the Budget, it is easy to forget people’s appetite for loss and attitude to risk. From this research we can see although many people are comfortable managing their own money to provide a suitable income throughout retirement, almost one in three are not.”
Goodey continued: “People approaching retirement will have to make some crucial decisions about how they can maximise the pension savings they have. With the welcome increased choice and flexibility comes more complexity. This is where receiving financial advice will be key, ensuring there is a balance between people understanding the risks to ensure their savings last their lifetime, without resorting to undue conservatism.”
In his recent Budget George Osborne proposed big changes to pension rules.
At present anyone over the age of 55 can take up to 25% of their pension pot as a tax-free lump sum, the balance has to provide an income for the rest of the pensioner’s life, which in practice means most people buy an Annuity.
It is now proposed that from April 2015, there will be no cap on the amount pensioners can draw down from their pot, effectively allowing people to take the whole fund as one lump sum if they wish. Any money taken from the pension, above the 25% tax-free lump sum, will be added to an individual’s income for that year and taxed at their marginal rate of 20%, 40% or 45%.
Fears have been raised by many that some people will simply take their pension pot as a lump sum, fritter it away only to find they have insufficient money with which to pay their bills.
Only time will tell whether these fears are realised, or people are more responsible, carefully managing their money, or indeed buying an Annuity, to ensure they have sufficient income to meet their needs for the rest of their life.
Do you need help planning for your retirement?
The new rules bring both opportunities and threats to your retirement.
How much income should you take from your pension pot? How long will you live? Should you buy an Annuity or use an alternative?
These, and many others, are all questions you need to answer.