Several research reports published this week gave an insight into how retirees have responded to the pension freedoms that came into effect in April.
Before the reforms came into effect, there was a great deal of speculation (particularly in the mainstream media) that many scheme members would cash in their entire pension savings.
According to research by BlackRock, this has proved to be the case. Its study of more than 1,000 people aged 55 or over found that 83% of those that have engaged with the new reforms have taken their entire pension pot as cash.
A further study by pensions firm Avacade Future Solutions, however, suggested that while retirees may have intended to make use of the new options available, these intentions haven’t yet translated into action. Of the 60% that said they planned to take a cash lump sum, for example, just under three-quarters (73%) said they had not subsequently done so.
I think we will need to wait a while longer yet for any conclusive trends to emerge.
A common theme across all of the studies was employees’ desire (or need) for education around such decisions.
Close Brothers Asset Management’s latest Business barometer, for example, found that a third of respondents have seen more employees asking for help with their future savings plans well before reaching retirement age since the pension flexibilities came into effect.
One conversation I had last week with Capita’s Gareth Davies and Robin Hames about employees’ retirement expectations also proved to be an eye opener. They have found that many people grossly underestimate their life expectancy – sometimes by up to 20 years. This makes planning an income in retirement nigh on impossible.
Tackling such misconceptions must surely be the starting block for any pensions education programme.