Pension Freedoms and Customer Behaviour
Pension freedoms, what's happening?
The world of saving for retirement changed instantly the moment the Chancellor announced that from April 2015 people with DC pension schemes would be offered a raft of new freedoms.
Demand for cash
Although we are cautious about reading too much into the choices people are currently making, in the six weeks since 6 April the vast majority of requests we've received at Legal & General have been for cash.
However, putting this into context, around a quarter of these requests have been related to 'small pots' where even under previous legislation members could withdraw the whole amount in a single lump sum if they wished. But of course, people are now eligible to cash in five years earlier than before, and for more and larger pots.
We've also seen members looking to take advantage of Flexi-Access Drawdown, predominantly because of the flexibility of taking a tax-free cash lump sum while leaving the remainder invested, with others requesting a monthly income.
The rest are choosing to buy an Annuity, but unsurprisingly the number of members doing this has declined.
Research shows lack of customers' confidence in Pension Freedoms
Mintel research finds 25% of people don't trust pension companies, 33% haven't heard of Pension Freedoms and many worry they won't be able to retire comfortably. For those in a position to access their benefits research suggests a fear of making irreversible decisions and the costs associated with speaking to a financial adviser has led to a feeling of being unable to take advantage of the changes. Doubt still remains as to the extent people understand the potential consequences of their actions.
Although our experience is that most cash withdrawals wouldn't have been sufficient to purchase a significant monthly income, it's reasonable to assume that many may have secured a regular retirement income or remain working.
In the long-term, choices will of course be influenced by factors such as new retirees receiving a single state pension, the reduced number of DB pensions and members having significantly higher sums invested in DC plans. Pension scheme members are also likely to become more knowledgeable as providers, advisers and Pension Wise increase the level of education among those retiring.
Educating retiring customers can only help
With this hope in mind, in order to try and bridge the gap between confidence and fear, and empower members, we've added new material to our existing suite of online tools and education.
We've re-launched our 3-in-1Retirement Planner - a planning tool including the new retirement options, introduced a new webpage describing the new pension freedoms options and created videos (This is me - Pension Freedoms) as well as an interactive e-learning module (Cash Family Challenge - Peter Cash Considers Accessing his Pension Pot), all of which have generated significant web traffic and tool usage since April.
We've additionally signposted Pension Wise throughout our online journeys.
However, with the dust yet to settle it remains far too soon to see the full impact of Pension Freedoms and what it means for us and our members.