Record numbers of people will be celebrating their 55th birthdays next year – 940,000 – the age which they can first access cash in a defined contribution pension.
But there are still too few people using impartial pension guidance which could result in many being left vulnerable to scams and making poor choices says UK financial services firm Just Group.
Stephen Lowe, group communications director at Just Group said: “People need to think very carefully about helping themselves to pension money in their 50s because many of them are going to be relying on it later.
“By this time next year more than five million people will have reached age 55 since the pension ‘freedom and choice’ reforms of 2015, yet too many people are still not receiving impartial guidance or regulated advice before accessing their pension money.”
The “new norm”
Early access to pension cash has been described as “the new norm” by the Financial Conduct Authority (FCA).
Its Financial Lives research revealed 55% of those accessing pension cash did so at the age of 55, more than a decade before State Pension Age, and on average at a significantly younger age than before pension freedoms were introduced.
Lowe said: “Evidence shows that the free, impartial and independent guidance offered by Pension Wise does have a strong positive impact on the decisions made by users.
Pension Wise customers felt better able to avoid scams and were better informed of their options compared to non-users – the problem is that there are too few people benefiting from its support.”
The Financial Guidance and Claims Act, passed in May 2018, makes the FCA responsible for ensuring pension savers who do not take regulated advice either use their Pension Wise guidance appointment or exercise their right to opt out of guidance.
Of the 650,000 pension pots accessed for the first time in 2018-19, 400,000 were accessed without regulated advice of which more than three in four were taken without a guidance appointment.
“In the coming weeks we expect to see the results of trials undertaken by the Money and Pension Service to find ways to improve guidance take-up.
“Optimistically, we are probably a year away from seeing the results of the trials turned into FCA rules. Meanwhile nearly a million people will slip through the system without the benefit of the free and impartial guidance offered by Pension Wise – which was the promise made by George Osborne, the architect of Pension Freedoms.
“We are at the peak of a wave of people being able to access pension savings, with this year particularly important due to the greater economic uncertainty created by Covid-19. Every day of delay sees thousands more people accessing pensions without the support they could benefit from,” said Lowe.
Kay Ingram, director of Public Policy, at national finance advice firm LEBC, said in her blog post titled ‘Keeping Track of Pensions’: “On average, British workers can expect to have 11 different pension plans during their working life. This can make keeping up with them all a headache.
“Latest estimates show nearly £20 billion is abandoned in unclaimed pension pots. The government is requiring the pensions industry to create a digital dashboard which will provide a summary of each person’s pensions in one place. This is expected to be available from 2021 but may not contain all pensions by then. LEBC supports this initiative which will leave consumers better informed and make planning for retirement easier.”