More than a third (34%) of workers over 50 have not yet decided on how they will access their pension savings as they approach retirement, according to Scottish Widows’ latest Retirement Report.
While 46% of those still working expect to take their tax-free cash as soon they can, in reality 64% did this. This gap shows how priorities can change as retirement moves from a future plan to something more immediate.
Before retirement, 27% of workers expect to keep most of their pension invested and take a regular income, while 20% plan to buy an annuity. However, 28% of retirees actually choose an annuity, highlighting the appeal of a guaranteed income for life.
A critical decision point
Reaching the milestone age of 55* – when most savers can begin accessing their pension - opens the door to a range of complex decisions about how to take their money, understand how much tax they may have to pay and create an income that will last throughout retirement.
The research shows that four in 10 (41%) over-50s who are still working have little or no understanding of the different ways they can access their pension savings in retirement. Only a quarter (25%) feel confident they know all the main options available to them.
The gap is even more pronounced among women. Nearly half (46%) of women over 50 who have not yet retired say they have little or no knowledge of their retirement options, compared with just over a third (35%) of men.
Leaving it too late
The good news is that most people recognise the value of advice and guidance. More than four in five (81%) over-50s agree it is important to seek support before accessing their pension.
The challenge is timing. Almost a fifth (19%) plan to seek advice only in the year they retire, leaving limited time to consider their options and put a plan in place. A further 15% do not know when they will seek help, while just 8% do not expect to seek advice or guidance at all.
Leaving decisions until the last minute increases the risk of unintended consequences, from larger-than-expected tax bills to lower income later in retirement.
Technology can help close the gap
As the industry looks for ways to engage people earlier and make retirement planning simpler, technology has an important role to play.
Insight from Scottish Widows shows that people are open to new forms of support, with 42% saying they would use AI tools to help explain complex pension terminology and translate industry jargon into plain English.
By making retirement choices easier to understand and encouraging earlier engagement, technology has the potential to help more people make informed decisions and achieve better outcomes in later life.
Carolyn Jones, Retirement Director, Scottish Widows commented: “Turning 55 opens the door to pension savings built up over a lifetime, but while access to that money brings opportunity, it also brings important decisions that can shape retirement for decades to come.
“That's why we need to bring the conversation forward. Too many people only fully engage in their retirement planning when they approach the point of taking action. By then, valuable opportunities to plan, prepare and make informed choices may already have been missed.
“The industry is making progress. Targeted support, guided retirement journeys, digital advice and workplace education are all helping people navigate increasingly complex decisions. But we need to go further.
“Our rallying cry is simple - engage earlier, understand your options and seek advice sooner. And, as an industry, we have a shared responsibility to give every customer the knowledge and support they need. For example, Scottish Widows’ app helps customers better understand what they have in terms of pension savings, track lost pots and decide what to do with them in just three simple steps. The earlier people think about their income needs, the more choices and confidence they have to achieve the lifestyle they want.”
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