Infancy of pension freedoms causing member confusion

The relative infancy of pension freedoms is causing confusion amongst the younger generation, who need more guidance on planning for their retirement, according to Prudential UK director of propositions, Stuart Paton Evans.

Speaking at the Association of British Insurers' annual conference, Evans explained that, because they do not have family or friends that have gone through the modern system, introduced in 2015, younger people are unsure of the best way to plan financially for their future.

He stated: “Pension freedoms is so new that there is no reference point for them. They haven’t had uncles or parents who have gone through the pension system as it currently is today, so there is no recognised appropriate path for them and they are often coming in very confused.”

In order to assist younger people in navigating pension freedoms, Evans believed that more guidance was required to avoid a situation where members felt unsure of what to do with their pension savings and when to access them.

Furthermore, he had concerns about pension freedoms causing a short-sighted approach to retirement savings withdrawals as member’s primary focus was “on accessing that first £5,000, because they have already spent it or they have an immediate need for it”.

He continued: “There are unquestionably too many people who are just sitting there having done nothing with their money after the first £5,000.

“We have to make sure that we understand what is driving that, but also create enough information so that we can check those customers are getting the right outcome.”

As the pensions landscape shifts from primarily DB schemes to primarily DC schemes, Evans warned that the industry and its members may be unprepared for the change.

He said: “There are a lot of people coming through at the moment who are accessing money from a smaller pot and feel that they can cos they have a DB buffer or they have two or three other larger pots elsewhere, but you’re not going to always see that.

“I’m concerned about what that looks like in 15 to 20 years time when the DB generation have gone through the system and we are relying purely on DC and auto-enrolment.”

Evans again highlighted the importance of increased and improved guidance, saying: “In terms of what they want, they need guidance. They come to us and say ‘tell us what to do’ or help us’.

“The investment pathways are a good move forward, I think there’s a lot more for us to do.”

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