NAPF: Half believe drawdown will deliver guaranteed retirement income
Talking Head: Pension freedoms are now open for business, and in the last week of March 2015 the National Association of Pension Funds surveyed savers aged 55-70 to see what they plan to do with their defined contribution pension savings under the new rules.
Generally people were positive about the reforms, with 63 per cent saying they believe pension freedom is a good idea but they can see drawbacks.
More than a third (36 per cent) worry people may lose their money in pension scams, and in recent weeks we have seen the industry renew its fight against the practice, not least through the publication of Combating Pension Scams: The Code of Good Practice.
One of the concerns about pension freedoms was there would be a dash for cash, but in fact our survey found nearly half (49 per cent) plan to either wait to see how things pan out nearer retirement or are not yet sure what they will do – unsurprising, perhaps, given the tight timescale for the introduction of these reforms and that it will take time for the market to develop fully and for people to understand their options.
Many savers are struggling to understand what drawdown will offer them in practice, with more than half (52 per cent) thinking it would give them a guaranteed income in retirement
Out of those respondents who expressed a preference about how they intend to access their savings, almost three quarters (74 per cent) were planning to leave their savings invested and draw a regular income.
However, our research shows many savers are struggling to understand what drawdown will offer them in practice, with more than half (52 per cent) thinking it would give them a guaranteed income in retirement and 45 per cent believing that if they take no more income than they would through an annuity, their money will last until they die.
With so many people hoping to use drawdown or something similar, it is important the pensions industry and government work together to develop a market that is suitable for those with smaller pension pots.
Default decumulation
There is mounting evidence of the need for default pathways in the new pensions system to make it really work for savers.
These would give people easy access to quality-assured products when they want their money, but they would still have the full range of choices available and could use Pension Wise to decide which options may be more suitable for them.
The pension reforms have the potential to bring real benefits to savers but to realise these benefits the industry and government must cooperate to make these default pathways a reality, develop a market for drawdown that works for a range of savers and, crucially, stay vigilant for potential scams and malpractice.
Graham Vidler is director of external affairs at the NAPF