Nearly a third of over 55s report being confused about pension withdrawal options according to research from Standard Life.
The survey, which coincides with the end of the FCA consultation on ‘targeted support’ solutions, found that only a third (32 per per cent) in this age group said they felt confident they understand the options available to them.
There was particularly confusion around tax, with 33 per cent saying they were not confident they knew how pension withdrawals might be taxed – only 29 per cent said they were confident they understood this aspect.
This confusion comes almost 10 years on from the introduction of pension freedoms, which gave people more flexibility as to how they take pension benefits.
In order to help people understand their options and make better decisions, the government and FCA is proposing a new ‘targeted support’ option, which will be offered alongside generic guidance and full financial advice. This approach would allow pension providers to explain what people in similar positions typically do when faced with a similar set of circumstances.
Standard Life retirement director Mike Ambery says: “It’s concerning that nearly 10 years after people with a DC pension were given more choice in how to access their money as part of ‘pension freedoms’, so many people feel confused about their options.
“Providers have a big role to play in making communications as clear and targeted as possible, and greater access to personalised guidance is key. We want to be able to help people make good decisions and if implemented properly the targeted support solution could help us steer people towards the right outcomes for them.
“Many people understandably don’t think about how much tax they’ll need to pay from their pension income, however it’s important to bear in mind especially when it comes to the critical moment of accessing pension savings.”
He points out that there can be a ‘big cost’ to overlooking tax when accessing pension benefits. Standard Life analysis of FCA data found that more than 221 people fully withdrew a pension pot of £250,000 or more between October 2022 and March 2023, resulting in a tax bill of at least £97,500.
Catherine Sermon, head of public engagement and campaigns at Phoenix Insights adds: “At retirement age many people are faced with complex decisions on how to use their pension savings despite often having very little knowledge or support. Without paying for professional financial advice, the twin issue of high-stakes decision-making and a lack of understanding leaves people at risk of choosing a retirement strategy that might not be in their best interest.
“Enabling firms to offer more tailored support so customers are better informed at this key juncture could be a significant factor to closing the gap between professional advice and free generic guidance services.
“Phoenix Insights has recently launched a public engagement programme which explores a range of perspectives on targeted support, along with the concepts of consumer choice, consumer protection and consumer best interest in accessing a DC pension.”
