Ten years on from the introduction of pension freedoms, new research has shown that while consumers value its flexibility, a large number are concerned about running out of money in retirement.
A new industry research paper from AKG, part of Defaqto, found fewer than half (47%) of consumers are aware of the reforms. Of those, 27% said they understand how the changes affect them, however, 19% say they do not.
Among those aware of the reforms, more than seven in 10 (71%) value the flexibility to access their pension savings as they wish and 59% are actively trying to balance investment risk with their income needs in retirement.
However, the paper ‘Ten Years of Freedoms – Lessons, Gaps, and the Road Ahead’ found 45% worry they may run out of money due to increased choice and 44% of people say retirement planning has become more confusing since freedoms were introduced.
The concerns were shared by advisers, with 41% admitting that flexibility has increased the risk of clients depleting their pension funds, while 43% believe clients are confused by the broader range of retirement options. Despite this, half (51%) still view the introduction of greater flexibility as a positive development for their clients over the past decade.
The paper, sponsored by Fidelity and Standard Life, also highlights a sharp divide between advised and unadvised consumers. While those receiving financial advice benefit from structured retirement planning, such as cashflow modelling and ‘bucketing’ strategies, those without advice are being left to navigate complex options with limited understanding of the associated risks and consequences.
The report reveals a growing advice gap, with only 29% of consumers saying they would turn to a financial adviser for support, and just 20% willing to pay for financial advice.
Matt Ward, communications director at AKG, said: “Whilst flexibility has empowered more personalised retirement journeys, it is also increasing the risks of poor financial outcomes. Consumers are making life defining decisions without full understanding. The right combination of guidance, accessible advice and innovation will make freedoms work better in the next decade.”
Warren Bright, head of retail intermediary distribution at Standard Life, commented: “The role of advisers has never been more important for society with full financial advice remaining the gold standard.
“However, if we want to continue revolutionising people’s retirement prospects across the next decade, we need collaboration between government, regulators, providers and advisers to take positive steps towards helping more people when it comes to making major financial decisions around retirement. We know that many are unwilling or unable to seek advice and addressing adequacy and access are key.
“The ongoing consultation on Targeted Support, if implemented properly, has the potential to address the balance where worryingly 90% of people are making retirement decisions unsupported.”
The paper also highlighted the need for more decumulation focussed product innovation and better support from platforms in managing clients’ retirement income strategies. Two in five (40%) believe that platform operators are well positioned to flourish over the next few years but only if they continue to evolve their offerings.
Paul Richards, head of adviser distribution at Fidelity Adviser Solutions, added: “Platforms, with their comprehensive package of solutions and wrappers, are exceptionally well-placed to support advisers and their clients through the whole retirement planning journey, both pre- and post-retirement. Not only do they provide clients with choice and value for money, advice firms stand to benefit as well through increased efficiencies and complementary platform services.”
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