A lack of understanding
Posted on Nov 19, 2018
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Research unveiled by Just Group this week shows that while half of over-40s have the basic knowledge to make good pension decisions, one in 14 is at high risk of making poor later-life financial choices.
Just Group’s ‘Retirement Risk Index’ was created to examine how prepared the British public is to make decisions over their later-life finances and it examines the understanding of key factors such as longevity, the level of State support they can expect to receive in retirement and attitudes towards accessing and spending private pension savings.
The research – which was conducted with 2,102 UK adults aged 40+ - reveals that 50 per cent had enough basic understanding to be considered low risk, while 43 per cent who lacked some knowledge were at medium risk. The remaining seven per cent were high risk, a reflection of the poor understanding of longevity and State pension provision, combined with potentially extravagant spending plans.
Those at ‘low risk’ had an adequate idea of what the State will provide and those closer to retirement have a better understanding of longevity, seeing them on track to avoid the worst retirement pitfalls.
The youngest respondents (40-44) and those just below 55 (the earliest age at which most people can access their pension funds) were more likely to be high risk.
Where the research focused on those who were planning to fully cash in their pension at 55, the proportion of those at high risk doubled to 14 per cent. This is because these age groups were more likely to want to access all their pension cash early with no intention of using it for post-retirement income.
Not surprisingly, the report states that ‘guidance and advice are the best antidotes to the dangers that lurk when choosing how to use pension money, such as paying unnecessary tax or taking too much too soon’ and we at The Goodman Partnership would completely agree with this.
Another recent survey also shows that the British public has very little understanding of the benefits of investing in a pension. The financial consultancy, LCP, asked people what they would do with a £25,000 windfall and only one in 20 people said they would put it in a pension, with most preferring to save the cash or use it towards buying a home.
Unsurprisingly, young people aged 18-24 were most likely to shun a pension, with just two per cent saying they would put it towards retirement – the same proportion that would gamble it in a casino…
The knowledge our clients have about pensions varies enormously. Some are very savvy and will read up online or scan the financial pages and ask us questions, while others want as little involvement as possible. The fact remains that the subject of pensions, investments and tax can be complex.
We pride ourselves on keeping on top of the latest learning and giving our clients peace of mind that they are getting the most up-to-date advice, while also taking into account what hopes and plans they might have for their retirement.
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