7th November 2019
The FCA has released new data showing the actions that individuals have taken the first time they access a pension pot. It collected the data from all regulated firms that provide retirement income products during 1 April 2018 to 31 March 2019.
Key findings include;
Jonathan Watts-Lay, Director, WEALTH at work, comments;
“These findings highlight how popular freedom and choice in pensions has been with people.”
He adds; “Many individuals are now moving away from purchasing an annuity towards income drawdown. Whilst it brings much more flexibility, without the expertise of how to manage it, it can be easy for people to make poor decisions, which can lead to a permanent dent in their retirement income. They could end up paying more tax than necessary, underestimating how long their retirement savings will need to last, falling victim to a scammer or simply making ill-judged investment choices.”
Watts-Lay warns; “These risks are likely to be greater due to the number of people failing to seek regulated financial advice when accessing their pensions. Many don’t realise when they buy retirement products without taking regulated financial advice that there are charges deducted which can cost just as much, if not more, than getting advice. Studies have shown that those who take regulated financial advice are more likely to increase their wealth than those who do not.”
Watts-Lay comments; “Alarmingly, the findings indicate that many people are failing to shop around when purchasing income drawdown. Without shopping around, they could be at risk of not getting the best deal and end up with potentially less money in their pocket every month in retirement. They may end up paying charges that are higher than alternative options and the choice of investments may not be appropriate for their needs.”
He explains; “For example, Which? found last year that the difference between the cheapest and most expensive drawdown plans was a staggering £12,000 lost in charges over a 15 year period.”
Watts-Lay comments; “All these findings demonstrate that financial education, guidance and regulated financial advice is more important than ever, and it is crucial that people speak to their employers to find out what support is available.”
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