Pension Freedoms One Year On – The Class of 2016 are positive but cautious
- Pension freedoms have made 34 per cent of those retiring this year feel more positive about their retirement
- Nearly a third are now more likely to take professional finance advice
- Rule changes have so far had no impact on retirement income plans for three-fifths of those retiring in 2016
As the implementation of the pension freedoms reaches its first anniversary, new research from Prudential has found that many of this year’s retirees feel more positive about their retirement as a result of the changes. However some are adopting a wait-and-see approach before deciding whether to take advantage of the rule changes.
As part of its unique annual research into the financial plans and aspirations of people planning to retire in the year ahead, Prudential has found that the changes to pension rules have boosted the retirement confidence of more than one in three (34 per cent) of this year’s retirees – the Class of 2016. This year’s research provides the first set of results reflecting the attitudes of retirees who have all retired in a post-pension freedoms world.
When asked what the positive aspects of the rule changes are, more than two-fifths (44 per cent) mentioned the greater degree of flexibility they now have over access to their pension savings, and 41 per cent are happy that they can now take more responsibility for their retirement finances. With this in mind, nearly one in three (31 per cent) said that they are now more likely to take professional financial advice.
However, people planning to retire this year are also approaching the new freedoms with caution. Nearly three-fifths (59 per cent) say that the changes haven’t yet led them to alter their plans for taking an income from their pension savings, while nearly half (49 per cent) say the pension freedoms haven’t had an impact on their attitude to retirement, as they are not sure the rule changes will last.
Only one in five (22 per cent) of the Class of 2016 have changed their plan to take a retirement income from their pension savings in light of the rule changes – perhaps a direct result of the fact that nearly half of this year’s retirees (46 per cent) still stand to benefit from a final salary pension. In fact, those with a final salary pension are the most likely to leave their retirement plans the same (69 per cent). People planning to retire with defined contribution pensions are almost twice as likely to have changed their plans (37 per cent) compared with those who have a final salary pension (20 per cent).
In total, over a third (36 per cent) of those with pensions planning to retire in 2016 will exploit the new freedoms and take some or all of their pension savings as a cash lump sum. Of those who will take cash from their pension, more than four in 10 (43 per cent) plan to take out more than their 25 per cent tax-free amount, potentially exposing themselves to a tax bill.
Vince Smith-Hughes, a retirement income expert at Prudential, said: “We are in the midst of some of the biggest changes to pensions in a generation, so it is pleasing to see that people broadly welcome the new rules. It is also understandable that, in the face of such change, this year’s retirees who have done most of their retirement planning under the old set of rules are cautious about making big changes to their plans.
“The results do however show that a large proportion of retirees have used the pension freedoms to access some or all of their pension savings. Doing so carries a real risk of being hit with an unwelcome tax bill or running out of money in retirement, and I would urge anyone considering taking a lump sum from their retirement pot to first seek professional financial advice or at least make use of the Government’s Pension Wise guidance service.”
“It is also worth remembering that money saved into a pension is there to support you later in life, and as the new pension rules become the norm and fewer people retire with a guaranteed final salary pension, there is a chance that more will be tempted to dip into their pot. Saving as much as possible as early as possible remains the best way for most people to make sure that they don’t outlive their retirement savings.”
This year’s retirees face a further change to the pensions landscape with the introduction of the new ‘flat-rate’ State Pension, however, nearly one in four (24 per cent) of the Class of 2016 say that they don’t know about the change.