Helen Morrissey looks at PLSA research into the experiences of the first people to access retirement income freedoms.
Recent research from the Pensions and Lifetime Savings Association (PLSA) shows there is room to be positive about the future of freedom and choice.
The research showed little evidence of the much expected 'dash to cash', with very few people actually blowing their pension pot.
Despite this, the research also shows significant challenges need to be addressed if the 'post freedom' retirement world is to work as well as it should. For a start, a worrying amount of people who took their fund as cash chose to stash it in either a savings account or a cash ISA. We all know the pitiful amounts of interest being paid out on these products so it is fair to say they are not a good long-term bet for inflation-busting returns.
I am concerned that many people may have entered contracts without realising that this is how drawdown works. If that is the case then I anticipate some nasty shocks ahead.
Another issue was around the number of people who said they had purchased an annuity. According to the research, 20% of those who took action on their retirement savings said they had purchased such a product. This is higher than many thought but there are concerns that people might have got confused and actually not have purchased an annuity at all.
Annuities pay out a certain guaranteed level of income for the remainder of a person's life - there are good reasons why some people may choose to go down this route. If they haven't purchased an annuity then the likelihood is that they have gone into some kind of drawdown product that will leave them exposed to the market. This is great if that is what you want but I am concerned that many people may have entered these contracts without realising that this is how drawdown works. If that is the case then I anticipate some nasty shocks ahead.
Freedom and choice has the potential to give so many people a positive retirement experience. For it to work as well as it could we need to ensure we put appropriate pathways in place so retirees know where to get the help they need.
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