The new pension freedoms are popular with employees who have a defined contribution (DC) pension, according to a report published by the Pensions Policy Institute (PPI).
Its Supporting DC members with defaults and choices up to, into, and through retirement: qualitative research with those approaching retirement report revealed that two-thirds (66%) of the 55 respondents had pension pots estimated to be worth £30,000 or more, and that a minority had DC pensions either below £30,000 or above £100,000.
The research found that the 55-70 year-olds polled did not feel confident with equity markets or making direct investments themselves, which resulted in them tending to invest their non-pension savings in cash-based investments such as Individual savings accounts (Isa).
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The report, which was sponsored by investment management organisation State Street Global Advisors, also found that:
- Most participants were initially drawn to investment options in retirement that involved them taking little or no investment risk to protect their capital and guard against losses.
- 1 in 6 participants had additional savings and investments to supplement their retirement income.
- 75% of respondents had a cash Isa.
- Most lacked the confidence and knowledge to choose equity-based products, meaning that savings tend to be placed in cash-based investments.
- 1 in 2 (50%) thought they have enough saved for retirement.
- 1 in 3 (33%) are expecting an inheritance to boost pension savings.
- Most participants expected to stop working completely around or at the age of 70, with most tending to underestimate their life expectancy.
Melissa Echalier, senior policy researcher and co-author of the report, said: “The findings were encouraging, in that while those with DC pensions were disengaged with the decisions they will need to make at retirement they were capable, when supported, of making some important decisions.
“The risk is that without access to advice or suitable defaults in place they make poor decisions, which could include taking their fund as cash and placing it in very low return investments.”
Alistair Byrne, senior DC strategist at State Street Global Advisors, said: “It’s clear that default investment strategies in DC plans need to cope with uncertainty around when people will retire and how they will access their retirement savings.
“The industry needs to put in place well governed retirement income defaults that provide members with value for money and flexible access to their assets, without overwhelming them with complex choices.”
Paul Todd, assistant director of investment policy at the National Employment Savings Trust (Nest), said: “These findings considerably move the debate forward about employee’s needs and preferences when it comes to retirement decisions.
“Auto-enrolment pension schemes need more than ever to provide members with a suitable range of options, and address the challenge of getting members to engage at the right time.”