The majority of Brits have no idea about their pension or even where it is invested, new research has revealed.
Instead of understanding where their retirement cash is and how it is managed, nearly three quarters have never looked at the details with five out of six saying they ‘trust’ their fund managers to protect their investments.
Despite the biggest pensions reform of a generation last April which allowed retiring savers to take their whole pension pot as cash or invest it as they see fit, one in six haven’t ever taken specialist advice when deciding how best to fund their retirement let alone what to do now.
The survey of 1,502 over 50s by pensions law specialists Slater and Gordon found seven out of ten have no idea where their cash was invested and a third didn’t understand how their investment was being managed.
Fraser Whitehead, lawyer overseeing pension issues at Slater and Gordon who commissioned the research, said: “Pension investment and management is one of the most important financial decisions a person will make; the wrong one could be disastrous.
“The pensions market is dominated by providers who often offer complex, complicated and confusing advice.
“It’s no surprise many people nearing retirement age don’t understand how their pensions are invested, managed and charged, but they need to know.
“That’s because some of the biggest pension providers are facing allegations of mis-selling. It is therefore crucial that those nearing retirement age, who are considering their pension, an annuity, or cashing in a pension, take appropriate financial and legal advice and protect themselves.
“For example, if, when looking into their pension and its performance, people discover it is not as expected, they should then find out whether the original advice they were given was poor. In this situation they could be able to take action.”
The top pension investment choice for the over-50s is an annuity, followed by a mix of investment options, income drawdown, investing in stocks and shares and then property investment.
One in ten are already planning to take advantage of Chancellor George Osbourne’s plan to allow existing pensioners to swap their annuity for a fixed lump sum from 2016 and want to invest the cash on home improvements or a holiday.
Three in seven say they are reconsidering their plans because of the pension reforms but have yet to seek out specialist advice.
While two thirds admitted they either did not understand the new pension changes or needed to better understand them before making any decisions.
Fraser Whitehead, lawyer overseeing pension issues at Slater and Gordon said: “We are now hearing that pension providers are changing their minds about whether they will offer the full range of the government’s new pension freedoms, as is the case with Friends Life, which has five million customers.
“Friends Life, part of Aviva, initially told its customers they would be able to withdraw money from their life savings as often as they wanted after the age of 55.
“But the firm has now reversed that decision, and has written to those affected to say they will have a more limited range of options. This change could have massive implications for their customers’ future and tax bills.”
The surveyed showed that despite nearing the end of their working life, more than a third of respondents have not yet started planning for their retirement at all.
Nearly a third said they relied on the written information provided by their pension provider to give them all the information they needed yet nearly half of respondents admitted they don’t fully understand their annual pension fund statement.
Three out of five Brits have no idea how their pension fund managers charge for their services and two thirds don’t know how the fund complies with the transparency or pension cap guidelines, including the government’s 0.75 per cent pension cap introduced in April.
The research revealed 54 per cent said they did not understand how an annuity worked and 71 per cent simply bought the first annuity they were offered by their pension provider.
Twenty seven per cent of Brits have already purchased an annuity, but a fifth now regret this decision and would now like to reverse it.
Fraser Whitehead, lawyer overseeing pension issues at Slater and Gordon said: “Many people nearing retirement age need to better understand the pension changes and their options.
“Now, more than ever, it’s important to be able to ask questions of a reliable pension advisor and act quickly. If you do not understand the information they are telling you it should be explained in writing.”