Better advice needed on access to pension income

With a current rise of people unlocking pension cash, more financial education is vital.

The Association of British Insurers (ABI) this morning called for a “fundamental overhaul” of financial advice and guidance as figures it also published today showed a 56% increase in people accessing flexible income from their pension since the first lockdown, between April and September this year.

The ABI said the rise in access was “due to a combination of factors”, including withdrawing after pausing earlier in the year because of stock market volatility and some people needing their money after a change in circumstances. It added that withdrawals of all kinds remained below 2019 levels.

Its research found that three quarters of people would not pay for financial advice.

Becky O’Connor, Head of Pensions and Savings at interactive investor, said: “Right now, it seems there is more risk of people making potentially damaging decisions with pensions than ever.

“The global pandemic has been a double whammy for people in or approaching retirement who have the option of accessing their pension. 

“Not only have their returns been all over the place through stock market volatility, causing anxiety and making it hard to know whether to withdraw, to add insult to injury, some have faced difficulties maintaining other sources of income, causing them to make untimely pension withdrawals that could cost them dearly later on.

“Clearly, having more education, guidance and advice would all help people who are facing these life-changing dilemmas with their pension pots. 

“However, as the ABI research shows, the cost of financial advice can be hugely off putting for many people. People also prefer to do their own research, with authoritative information sources being among the top choices.

“There is a lot of helpful information out there on specialist and government websites. While there are occasions when bespoke, personal advice is the right course of action, at present, it does not always reach those who would benefit because it’s not cost effective for them.

“More education and guidance about the options people will face earlier in retirement savings journeys would also help to prevent panicked and costly decisions later on.”

Moira O’Neill, Head of Personal Finance at interactive investor, said: “The introduction of ‘investment pathways’ for those withdrawing money through pension freedoms will help give people facing tough choices some more streamlined options. 

“An equivalent for those growing their money for retirement would also be helpful. Interactive investor has launched Quick Start Funds with this in mind, with passive, active and ethical options.” 

According to the interactive investor Great British Retirement Survey, 26% of retired people needed to used income drawdown for pension income this year, up from 22% last year. 

More than one in eight survey respondents who are yet to retire think they will need to delay retirement because of the downturn in markets, rising to one in five of those aged between 60 and 65. Yet there was a slight drop in the proportion of people working in retirement, from 25% in 2019 to 23% this year, perhaps owing to job losses. 

When it comes to advice, the Great British Retirement Survey found the most popular source of guidance was “my own online research”, with over a third (36%) saying this is where they got information, while 14% of respondents turned to Government-sponsored services, like Pensions Wise.

A quarter (26%) of people pay a financial adviser and 11% get advice from family and friends. Almost a third (31%) said they haven’t taken any guidance.