Confused’ pension savers plead for no more changes

Vince Smith-Hughes analyses statistics demonstrating the true cost of confusion around the pensions freedoms reforms

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On the second anniversary of the pensions freedoms reforms, retirement savers say they are confused by the rules and want no more changes, according to new independent research from Prudential.

The survey of 867 people found 67% of over-55s – the age from which retirement savers can use the new rules – say they are confused by the reforms launched in April 2015.

More than three-quarters (77%) want an end to any further changes to pension rules, and 42% say the continual changes to pensions has made them switch off from the topic.

Government figures demonstrate the cost of this confusion for retirement savers as tax bills related to the pensions freedoms are now greater than anticipated.

It was initially estimated that the changes would mean a total of £900m being paid in both tax years 2015-16 and 2016-17. In fact, a total of £2.6bn in tax is now expected to be paid.

The new freedoms are having an impact in other ways. Just 9% of over-55s say they have made changes to their retirement plans as a result of the reforms.

Interest in receiving financial advice has been increasing with a fifth of retirement savers (21%) saying they are taking financial advice, while a further 9% either plan to or have done so for the first time.

Those surveyed believe that additional support for savers in terms of advice and guidance would encourage them to save more – 36% say walk-in financial guidance centres would boost saving while nearly a third (31%) would back a tax break for savers taking face-to-face professional financial advice.

But concerns that pension rules may change again in the future persist, with 81% of over-55s worried that the state pension might be reduced and 57% concerned it will be abolished.

Just 63% also believe that tax relief on pension contributions will be reduced at some time in the future.

Government statistics show nearly 550,000 people have accessed more than £9.2bn in funds since the launch of pension freedoms, demonstrating that there is popular demand for the increased flexibility brought about by the reforms.

But two years on from the introduction of the new rules, there is also widespread confusion, with two out of three over-55s admitting they do not fully understand the reforms. This lack of understanding may be a contributing factor in pension-related tax paid to the Treasury being higher than originally expected.

That underlines the importance of advice and guidance in ensuring that pension freedom is a long-term success and it is encouraging that many savers recognise how advice can help them to make the most of their retirement pot. 

Pension freedom provides a framework of rules, but it is down to individuals to seek help where needed to enable them to plan how to meet their financial goals.

Saving as much as possible, as early as possible, during your working life is the first step towards having sufficient income for a happy retirement.

Prudential’s research found that over-55s would value support from their employers in tackling retirement planning. About 21% say access to financial advice at work would help them save more, while 20% would back having retirement planning seminars at work.

Vince Smith-Hughes is retirement income expert at Prudential