The Pension Panorama - today and tomorrow
Pension regulation is changing. In the 2014 Budget, the government introduced a range of changes to the ways in which we’ll have access to our pension savings.
From April 2015, anyone aged 55 or over can take their defined contribution pension savings as they wish, subject to marginal rate income tax in that year (and 25% of their pot will still be tax free). We’ll have more flexibility over the money we’ve saved and how we’re able to invest that money for the long term – so what do people think about those changes?
We now know, change is on its way
We’ve been canvassing opinions from the over-55s to help us compile our Autumn 2014 Retirement Report. The good news is that, despite this being a complex subject, there’s a good understanding of changes on the horizon. Over three quarters (78%) of over-55s still in employment knew what was about to happen, and how it would affect them.
And what’s interesting is that, despite the changes offering a significant increase in how much money could be accessed at the outset of a retirement period, many people see no benefit at all in taking their pension in a lump sum – despite the allure of, potentially, a large sum of ready cash.
Almost half (49%) could see no advantage to releasing the capital from where it’s being invested to date. Conversely, just under a quarter (23%) believed that money would be useful in supplementing their retirement income, and 14% saw it as a way to pay off outstanding mortgage debts – an indication of how interest rates in the 80s and 90s are now impacting retirement incomes, maybe? But the insight that’s most illuminating is that 36% of over-55s said they didn’t know yet if they’d take the ‘full drawdown’ option when it became available to them – which suggests to us there’s a need for more advice and information, all round.
More money now, less later?
We also asked people to think about the income they’ll have in the future, and what it may or may not buy depending on the rate of inflation. Very few of the over-55s we spoke to had extensive debts right now, which should make life easier as time goes on. But of those that did have debts, typically, they extended to approximately £800 on a credit card, £765 in personal loans and £100 or more in an overdraft (not a great concern, as they approach retirement). We were also told that over-55s have been prudent with their money to date – typically having around £14,779 or more in savings and investments (a significant increase on the £11,894 figure we were given in Q2 2013), and they’ve been putting away £185 or more each month – one of the highest levels we’ve seen since our research began.
However, along with more savings being made, more expenses are being accrued. Typical monthly expenditure is £846 compared to £792 in Q2 2013 (made up of essential outgoings, such as fuel, food and mortgage payments), and with the effects of inflation, it’s probable those outgoings will increase in relative value as time goes on – which is why it’s so important for everyone in this age bracket now to plan ahead, seek out expert advice on maximizing their pension savings to date, and perhaps even increasing the contributions being made into a pension now.
For more details about the opinions of over-55s, their views on changes to pension regulation and how it may affect them, download a full copy of our Autumn 2014 Retirement Report.