According to research by LV=, just one in four over 50s plan to seek financial advice about how they fund retirement, which could lead to them failing to make the most of their pension savings.
The report reveals that the Government’s campaign to raise awareness of the pension changes and Pension Wise is much needed, as many Brits approaching retirement have little or no knowledge of the new options soon to be available to them. The findings indicate that a third (33%) of those aged over-50 do not understand what the new reforms mean. One in ten (12%) over-50s are completely unaware that any changes are due to be made, meaning that many could miss out on the chance to improve their income in retirement.
Meanwhile, the report also highlights a gender gap when it comes to awareness of the reforms, with more than a third (36%) of women having little or knowledge of the overhaul compared to just over a quarter (28%) of men.
The gender gap is also reflected in the size of pension pots savers have in retirement. Women can expect to enter retirement with a pension pot worth just half (47%) of what the average man can expect to retire on. Women who have workplace or private pensions reach retirement with pots worth on average £107,000, while men can expect to retire with a fund worth £201,000.
The report reveals that, regardless of gender, funding a post-work life will be difficult as there is a gap between the level of income those approaching retirement say they need and what they can expect. Indeed, although those nearing retirement say, on average, that they will need at least £14,352 a year to meet essential expenses, they can actually expect just £10,590 a year from their private and state pension combined – a shortfall of £3,744 a year.
For many, the challenge of funding retirement is heightened by the burden of debt and family dependencies following them into retirement, LV= said. Currently, 4.3 million retirees have some form of debt, in the form of a mortgage (1 million) or outstanding credit card debt (2.5 million). Over a third (4.4 million) of retirees have given financial help and support to family members, mainly children, in the last 12 months.
John Perks, managing director of LV= Retirement Solutions, said: “In just a few weeks those approaching retirement will have even more choice as to how they take their pension income. This is a great opportunity for pension savers and the men and women who take advantage of these new rules could significantly boost their income.
“We strongly support Pension Wise and it will no doubt increasingly help make people aware of the options they will now have, and encourage them to take advice, to shop around and to consider alternatives to standard lifetime annuities, for example enhanced, fixed term annuities and income drawdown, or combinations. We would always encourage people to seek financial advice to ensure they make the most of the savings they have spent a lifetime building. We believe that it is crucial that the industry works together to demonstrate the value of guidance and advice to savers.”
