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Retirement

Only 25% of retirees plan to buy an annuity

Lucinda Beeman
Written By:
Lucinda Beeman
Posted:
Updated:
07/04/2014

Only 25 per cent of retirees plan to use their pension pot to buy an annuity following reforms announced in this year’s Budget, a study has found.

Last month, Chancellor George Osborne announced that defined contribution (DC) savers would no longer be forced to buy an annuity with their savings. Instead, from April 2015 they will be able to take their entire pension pot as a cash lump sum and pay a ‘normal tax’ rate instead of the old 55 per cent rate.

Research by Hymans Robertson found that of the 75 per cent of savers who would not use “most or all” of their savings to buy an annuity, 32 per cent plan to take most of their pot in cash and use some to buy an annuity; 12 per cent will take their whole pot as cash without buying an annuity at all; and 31 per cent will keep control of their money and draw an income from the pot each year.

Chris Noon, partner at Hymans Robertson, said: “The Chancellor’s Budget changes aren’t yet cold, but the mind-set of savers is clearly already changing. Greater trust and flexibility has been welcomed and annuities are set to be a product for the minority, not the masses.”

The report found two thirds of DC scheme members are confident about their ability to manage their own money.

Men and those on incomes above £34,000 a year tended to be more confident, while women and those on lower incomes were less so.

Those closer to retirement took a more negative view of annuities. Some 38 per cent of those over 51 reported feeling that annuities were a poor value, compared to 21 per cent of those aged 50 and under.

Noon added: “The confidence savers are showing on managing their own pots is positive. The reality, however, is that retirees are going to need tools to manage their pots over a 30 year period in retirement. Systems exist at present to help people build the right pot for retirement-what’s missing is the tool to help people spend at the right pace.”