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If you already have a financial planner you will be well informed of your income options in retirement. Your retirement plan will most likely comprise a mix of different sources to deliver a tax efficient ‘income stream’. Even without a financial planner, some people may still feel they have a solid plan in place. However, there is worryingly high number of people who aren’t really sure what they have or how they’ll provide for themselves in retirement, perhaps believing the State will support them.
LV= (formerly known as Liverpool Victoria) recently released the results of a quarterly market survey * of over 4,000 UK adults.
35% of pension holders surveyed admit they know nothing about the product options at retirement
The pension holders were asked what they through they knew about the different retirement products available, and the pros and cons of each one, such as Drawdown, Lifetime Annuities, Fixed Term Annuities, etc).
| All pension holders | £100K+ in DC pensions | Plan to retire in the next 5 yrs | Mass Affluent | |
| Nothing at all | 35 % | 13 % | 22 % | 17 % |
| A bit | 45 % | 41 % | 47 % | 43 % |
| A good amount | 16 % | 33 % | 23 % | 29 % |
| A lot | 4 % | 13 % | 8 % | 11 % |
Only 4% overall felt they were very well informed, and only 20% thought they knew more than “a bit”.
Over 70% of all pension holders surveyed didn’t know more than “a bit” about their pension investments and benefits
The pension holders were asked about how the stock market can affect their pensions, how to ensure they don’t run out of money, how to take money in a tax efficient way or how to pass money on to their beneficiaries in a tax efficient way.
| Base: all pension holders | The effect of stock market fluctuations on your pension savings | How to ensure you don’t run out of money in retirement | How to take money from your pension in a tax efficient way | How to pass on money to children/ grandchildren in a tax efficient way |
| Nothing at all | 35 % | 34 % | 36 % | 30 % |
| A bit | 40 % | 40 % | 40 % | 42 % |
| A good amount | 17 % | 19 % | 17 % | 21 % |
| A lot | 7 % | 6 % | 7 % | 7 % |
Tax can be one of the greatest costs to pension income, especially now that Pensions Freedoms has removed the maximum income limit, meaning a full pension pot can be taken in one lump sum. However, only 24% felt they knew at least “a good amount” about tax efficient withdrawals.
The cost of financial advice
Although the survey highlighted that only a small proportion of pension holders are adequately informed about their pensions, fewer than a third thought people should see a financial adviser when planning their retirement!
Of the “mass affluent” asked (those with assets between £100,000 to £500,000 excluding property), of the reasons listed for not seeing an adviser:
- 46% thought they were informed enough to make financial decisions on their own,
- 27% don’t want to pay for advice, and 20% believed it would be too expensive, and
- 25% don’t think financial advice is good value for money.
Yet, as we’ve seen from the tables above:
- 70% of the “mass affluent” don’t know what their pension options are, which could lead to poor decision making, such as which products they choose, when they retire or how much income to take. All of which could result in a costly tax deduction.
- Only 58% surveyed knew who their pensions were with,
- Only 44% has an idea of what their pensions were worth, and
- With less than 38% knowing if they were getting good returns or of the fees were reasonable.
So, whilst a financial planner may charge fees, the cost is far outweighed by the benefit of knowing you have a solid retirement plan in place, which will be reviewed regularly to ensure you make the best decisions for your personal circumstances, and which could save you from making extremely costly mistakes when extracting your funds.
Invitation
Pensions freedoms has raised significantly more tax for the HMRC than the Government had expected! Interested in finding out how we can optimise your financial plan and pension strategy? Get in touch today to arrange a free, no-commitment consultation with our team here at WMM.
You can call us on 01869 331469.
* The LV= Wealth and Wellbeing Monitor is a quarterly survey of 4,000+ consumers which examines their attitudes to spending, saving and retirement. The Monitor also surveys the attitudes of mass affluent consumers, those with assets of between £100,000 and £500,000 excluding property, which are a key target market for financial advisers. LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021.
