BLOG: Back to School

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Written by: Carl Howard, commercial director, TD Direct Investing
14/04/2015
The reforms to pensions, launched on the 6th of April, heralded a radical shift in the way people now save for retirement. In anticipation of the freedom that these changes will bring for the UK, we wanted to gauge how people were feeling about the reforms and the impact, if any, on their retirement plans.

The feedback was enlightening, revealing an enthusiasm among investors with 40 per cent saying they were keen to take advantage of this new-found freedom by withdrawing from their pots. Yet this is an enthusiasm that is tempered with caution about the options available to the new revolutionary class of ‘pension investor’.

In the wake of Treasury estimates that the Pensions Advisory Service provided 1,400 people guidance in the week following Pensions Freedom Day, now is the time to reflect on what more can be done to improve awareness of the options available to investors.

What UK savers will do with their new independence differs widely. Despite the unfounded concerns that the majority will rush out and buy Lamborghinis with their new windfall, our research instead highlights a more considered approach – for instance, nearly half of Britons (49 per cent) plan to use their pension pot simply to cover living costs. We also found that savers intend to use it to help members of their families, with one in six (16 per cent) expecting to have to help their children get on the property ladder and a further 11 per cent planning to pass a percentage to another member of their family. As if to support the point that investor behaviour is driven by a range of different motives, only one in seven of those surveyed said they intend to dip into their pots to buy a car!

Interestingly, UK pension holders’ plans diverge based on gender and location. Whereas 44 per cent of men said they intend to withdraw immediately, only 34 per cent of women intend to take the plunge. London’s savers were shown as the most keen to take advantage of the pension reforms, with 80 per cent of respondents considering withdrawing at least half of their pension pot.  This differs from, for example, Northern Ireland where more than a third of savers (35.3 per cent) would not even consider this option.

However, despite the UK’s enthusiasm for the imminent reforms, it is very clear that many pension-holders need more guidance and support to benefit fully from the options. 46 per cent of respondents said they had not received enough advice to make the best decision. This advice gap is letting down savers who are keen to use these new freedoms to take control of and safeguard their financial futures.

Of equal concern is the rise in pension scams – 1 in 7 respondents reported having received an unsolicited approach about their pensions in the run up to the reforms.  Given the freedom pension holders now have, it is more important than ever that they are able to the trust the advice they receive – without having to look over their shoulders at each turn.

The research also highlighted the need for pension providers to focus on rebuilding trust with their customers. 48 per cent said they no-longer trusted the industry – and this lack of confidence seems to have caused ambivalence towards investing in a pension at all: 23 per cent of respondents aged 30+ who don’t currently have a pension cited their mistrust in the industry as a barrier to getting one.

Of most encouragement is the fact that the reforms have got people thinking about how they assert control over their financial futures.  But, as our research highlights, these changes must be accompanied by a rebuilding of trust, the provision of more financial education and better overall support from the industry.  As one of the leading providers, we intend to continue leading this drive. As an industry, we must offer customers the support, guidance and freedom they will need to have full confidence in the wider sector and, specifically for us, DIY platforms. Then, and only then, will the whole country be able to share in the opportunities that this type of reform offers.

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