These findings are not necessarily surprising as defaulting individuals into something without any support or guidance raises questions over whose best interest it’s in. Many will argue that it’s a win for the provider because they keep hold of the member’s assets but it may not be a great option for the member.
Not only this, there’s a danger that Freedom and Choice in pension will be destroyed if individuals don’t make active choices at-retirement. It also discourages shopping around, which again suggests the winners are the providers. Additionally, as many retirees will have more than one pension, if they all default based on individual pots rather than the collective value, the likely outcome for many will be sub-optimal and less income at-retirement.
Before any decisions are made at-retirement, individuals really need to understand what their options are and the generic advantages and disadvantages of these options. So to default member’s at-retirement, without them really understanding what they are defaulting into, could lead to many retirees ending up with less income in-retirement than they could have achieved if they had made an informed decision.
Latest insights are a worrying sign that many individuals don’t understand the implications of accessing their retirement savings. Reportedly, over a quarter (27%) of individuals over the age of 55 don’t realise that they have to pay tax on their pensions if they take the money as cash, and the FCA found in the last report of its Retirement Outcome Review series this year that 62% of individuals in drawdown were not sure, or had only a broad idea, where they were invested. Coupled with this, the Office for Budget Responsibility has recently reported that revenues raised from the pension freedoms this year will be 50% more than forecast, suggesting that individuals are often paying tax when it could have been avoided.
individuals over the age of 55 don’t realise that they have to pay tax on their pensions if they take the money as cash. - 27%
individuals in drawdown were not sure, or had only a broad idea, where they were invested. - 65%