Majority of retirees keen to take lump sum
More than three-quarters of pension clients have expressed an interest in taking their pension as a lump sum, new research has revealed.
From next April, millions of retirees will be given much more flexibility and choices over their pension pots, including no longer having to purchase an annuity which would guarantee them an income for life.
The research from insurer LV= also found that many of those considering taking their cash in a lump sum are not clear about what it would mean for their money.
More than half (51%) of the financial advisers it interviewed said their clients were unaware that taking a lump sum could potentially mean they would have to pay a higher rate of tax.
Since the pension reforms were announced in the Budget, more people are exploring alternative options instead of a standard annuity. Some 88% of advisers said they have seen an increase in clients looking at their drawdown options, while 72% said clients have started to request products that will provide them both a guaranteed income and flexibility.
Philip Brown, LV= head of retirement, said: "Those approaching retirement now have even more choice as to how to take their pension savings, but it is clear that there remains an air of confusion amongst clients as to what the changes mean. It is particularly interesting to see that clients are increasingly interested in mixing and matching products.
"Many retirees may not be aware that this is a possibility and this is one of the many areas in which advisers can truly demonstrate the value of at retirement advice."
Earlier this week, it emerged that the ‘guidance guarantee' promised by the Chancellor to accompany the new pension rules is to be delivered by independent organisations rather than pension providers.
Those reaching pension age will be able to seek free guidance through a "broad range of channels" that will include face-to-face, online and phone support from the Pensions Advisory Service (TPAS) and the Money Advice Service (MAS), as well as other organisations soon to be confirmed.
"We believe it is essential that guidance leads to good consumer outcomes and, where appropriate, encourages individuals to take regulated advice. In many circumstances regulated advice will prove to be more beneficial and lead to better outcomes for retirees," added Brown.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.