Retirement savers are so confused about pension rules almost two-thirds intend to consult an independent financial adviser about their options.
But for many, taking advice is an expensive choice as more than half of pension savers approaching retirement have funds of less than £40,000 and IFA fees of up to £3,000 could take a big bite out of their cash.
The dilemma of pension savers was revealed in a study by accountants PricewaterhouseCooper (PwC).
Pensioner priorities
The research also found the main priorities for the over 55s approaching retirement are:
- Saving tax and picking up a guaranteed income
- Just 16% of new pensioners intend to buy an annuity
- Simple investments and financial security for dependants rank low
As a result, PwC reckons the annuity market could shrink by 75% within a few months, cutting off a profitable income stream for pension and insurance providers.
PwC UK insurance leader Jonathan Howe said: “It’s clear that Chancellor George Osborne clearly had life insurance companies in his sights when he made his pension changes in the budget, but no one realised just how much the new rules would impact on the industry at the time.
“Retirement savers want to invest their money in return for a guaranteed income but they tell us that the current annuity market is not the way they want to go, so the onus is on providers to come up with new ideas to satisfy the demand.”
Worries over advice
Howe also pointed out that two out of three retirement savers intended to take advice on how to invest their money from an IFA, but wondered if many with small pot pensions realised how much this consultation would cost.
“IFAs must charge a fixed fee to consumers, but at least half of their potential clients cannot afford to pay for the advice because the size of their pension funds does make it cost-effective,” he said.
“We feel this will leave a black hole in the market where IFAs can’t or won’t bring their prices down and many retirement savers cannot afford to pay their fees. The worry is the government’s plan to offer free guidance won’t go far enough and savers will take restricted rather than independent advice from providers who can only talk about their own products.”
As a result, PwC recommends pension companies revamp their product range and make the way they work simpler to understand for consumers as the study showed 50% wanted to buy investment products.
