A year has passed since the pension freedoms came into play…are people using their money wisely?
Twelve months on from the introduction of the pension freedoms, the government have decided to reform Pension Wise, the Monday Advice Service and TPAS to create one financial education service.
So what have the first retirees been doing with their money so far? And has the financial education provided sufficed?
Around a third (29%) of those who have cashed in some or all of their pension since last April have already spent it, according to new research from Fidelity International – while a quarter (24%) are likely to spend it in the next two years.
Although Fidelity’s figures reveal that 30% plan to treat themselves with the cash lump sum, more pressing financial needs are being revealed: one in four (24%) intend to pay off debt, and one in ten (13%) plan to invest the money in property.
However, the figures raise some serious questions about the education employees are receiving around their pension choices.
A third (33%) of those planning to reinvest intend to put their money into cash accounts with poor rates of return, while worryingly one in six (17%) have taken or plan to take more than 25% of their pension as a cash lump sum – leading to an extra tax bill.
Richard Parkin, head of retirement at Fidelity International, said: “Taking retirement savings as cash has been a popular choice over the first year of the pension freedoms. The challenge we are now facing is how retirees should manage this lump sum while also making their monies last.
“The first year of freedom has perhaps been more focused on telling people what they can do. We need to make sure we continue to help them understand what they should do. Choices made at retirement cannot be easily undone and people will benefit from seeking expert help even if only looking to take part of their savings as cash.”
With the introduction of the Lifetime ISA, employers have yet another savings vehicle for to consider as they try to help their workforce navigate the complex world of debt, savings, assets and retirement.
Now more than ever, the industry is urging them to think about the benefits of financial education and advice for their employees.
WEALTH at work is blogging about the key areas of employer consideration when helping employees through retirement in Reward's financial education hub.
The hub examines the changes in pensions and looks at how you can help your employees with financial education across all their savings. CLICK HERE to access the hub
For further information about WEALTH at work, please CLICK HERE