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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
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