“That, for me is the biggest thing, rather than the difference between income levels. Since the new rules came in with flexible drawdown, it’s not so much that clients are looking at it and saying ‘I want to do that and still be able to take lump sums out of my money’. They still want a regular income in a lot of cases, but the big difference is with an annuity. They were effectively – in their minds – giving their money away in exchange for income,” Mr Sturman says.
Some have suggested one partial remedy for continued retirement income ignorance may be a pensions dashboard, which will give savers access to comprehensive information about their pots in a single location.
Steven Cameron, pensions director at Aegon UK, doesn’t believe dashboards will act as a silver bullet for retirement income engagement, but says having the option to “see all of the pensions one may have” could be “a powerful incentive for individuals to start to develop an interest”.
Mr Cameron continues: “Once an individual sees how much they’ve got, some will be pleasantly surprised, and others may look and realise they’ve got less than [they] thought and may take some action to start saving more.”
More saving
Perhaps the most positive result of the freedoms is the fact they seem to have dramatically improved the number of people saving into pensions. According to Aegon, in addition to encouraging savers to think more realistically about retirement income expectations, 14 per cent of the working-age population are saving more “as a direct result of the pension freedoms”.
Aegon’s Mr Cameron attributes the rise to the fact that savers now have more of a say as to how to spend their pension pots once they reach retirement age.
“I think those who have decided to take an income are certainly exercising those freedoms in large numbers, but the other positive aspect is that our research is pointing to a significant proportion of people saving as a result. Even those who have not reached that age are saving more into their pension as a direct result of the freedoms,” he explains.
Research from Prudential indicates that the reforms have fostered favourable conditions for retirement planning. Two out of five advisers suggest freedoms will lead to “more comfortable retirement for consumers” with 58 per cent “believing the changes have led to advisers being able to help more people”.
Prudential’s Mr Cameron says: “There are lots of psychological triggers to make people think about how they’re doing for their retirement. There is always news about the state pension age increasing and pension freedoms were widely publicised. The total access to your pension funds have made pensions really attractive.”
