9 in 10 Have No Regrets at Drawdown!
Steve Conley
Founder of the Academy of Life Planning & Planning My Life | Championing Values-Driven Financial Planning | Mentor to Independent Planners | Author and Advocate for Meaningful Change
Recent research suggests that “1 in 10 pension holders regret not seeking advice” at drawdown. Doesn’t that mean that 9 in 10 have no regrets?
Understanding the Impact of Drawdown Decisions
Do people fully understand the downsides of drawdown, such as tax consequences and the increased risk of outliving their capital? How might consulting an adviser have altered their decisions?
What Advisers Might Have Suggested
A free money helper service adviser might have provided basic guidance on the pros and cons, while a regulated adviser could have offered more comprehensive advice, albeit for a fee. But would this advice have made a significant difference?
Survey Insights
According to a survey by Just Group, 8% of retirees aged 55 and older who withdrew money from their pension before leaving full-time work regret their decision. Notably, almost half of these individuals did not seek any financial advice beforehand.
Stephen Lowe, Group Communications Director at Just Group, commented: “It’s alarming that a significant portion of retirees are diving into their pension before leaving full-time work without the benefit of any financial advice or guidance.”
Examining the Broader Picture
Despite this alarm, 92% of those surveyed did not express regret. Does this mean they are unaware of potential pitfalls, or do they feel their decisions were justified given their circumstances?
The Financial Conduct Authority’s (FCA) data revealed that 37% of people entering drawdown in the 12 months leading up to March 2023 did so without any advice. Furthermore, the number of people doing this increased by 16%.
Financial Pressures and Immediate Needs
Lowe explained that the cost-of-living crisis, rising rent prices, and increased interest rates have put significant pressure on household finances. For many, accessing pension funds has been a crucial financial lifeline, especially for those facing health issues or redundancy.
Sometimes, the “rainy day” we save for arrives unexpectedly. While withdrawing from a pension can result in a hefty tax bill and compromise future financial security, the immediate relief it provides can outweigh these long-term concerns.
The Role of Advisers
Advisers typically emphasise the drawbacks of reducing retirement funds, often overlooking the current financial and well-being needs of their clients. They focus on preserving pension assets, potentially disregarding other factors such as:
This guidance is often driven by industry standards that prioritise asset preservation over immediate client needs. Financial advisers, motivated by fees based on assets under management, may also lean towards maintaining as much of the pension pot as possible.
A Different Perspective
Instead of highlighting what people might do wrong without professional advice, it’s important to acknowledge that 9 in 10 are satisfied with their decisions. The FCA reported that the number of people accessing their pensions for the first time rose to 739,535 in 2022/23, up from 705,666 in 2021/22, reflecting a growing trend of individuals managing their finances independently.
In conclusion, while professional advice can be valuable, it’s crucial to respect individuals’ ability to make informed decisions based on their unique circumstances. The narrative should shift from “shock and horror” to a more balanced view that recognises the diverse financial strategies people employ.
Empowering Informed Decisions
What the industry needs to do to help these people is to empower them to make more informed decisions by providing end-user tax calculators and cash flow forecasting apps to assess the risk of outliving capital, such as those provided by the Academy.
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Q&A: Understanding the Impact of Early Pension Withdrawals Without Advice
Q: What recent research highlights about retirees and early pension withdrawals?
A: Recent research suggests that 1 in 10 retirees regret accessing their pension funds early without seeking professional advice.
Q: How many retirees expressed regret over early pension withdrawals?
A: The survey conducted by Just Group found that 8% of retirees aged 55 and older who withdrew money from their pension before fully retiring expressed regret over their decision.
Q: What is the primary concern raised by Stephen Lowe from Just Group?
A: Stephen Lowe, Group Communications Director at Just Group, highlighted that a significant portion of retirees are withdrawing from their pension before leaving full-time work without any financial advice, which he finds alarming.
Q: What percentage of people entering drawdown did not seek advice, according to the FCA data?
A: The Financial Conduct Authority’s (FCA) data revealed that 37% of people entering drawdown in the 12 months leading up to March 2023 did so without seeking or using any advice.
Q: Why might retirees withdraw from their pension early without advice?
A: Financial pressures such as the cost-of-living crisis, rising rent prices, and increased interest rates have put significant strain on household finances, leading many to use their pension funds as a financial resource, especially in cases of health issues or redundancy.
Q: How does the research address the majority of retirees’ satisfaction with their decisions?
A: Despite the concerns, the research indicates that 92% of retirees did not express regret over their decision to withdraw funds early without advice, suggesting that many felt their actions were justified given their circumstances.
Q: What potential downsides of drawdown might retirees be unaware of?
A: Retirees might not fully understand the tax consequences, the increased risk of outliving their capital, and other financial implications of early pension withdrawals.
Q: What could a financial adviser have offered to retirees considering drawdown?
A: A financial adviser could have provided a detailed analysis of the pros and cons, tax implications, and long-term financial impacts, helping retirees make more informed decisions.
Q: What factors are often overlooked by financial advisers according to the article?
A: Financial advisers might overlook current financial circumstances, well-being needs, other financial assets, income sources, future financial assets, and overall well-being, focusing instead on preserving pension assets.
Q: How has the number of people accessing their pensions for the first time changed recently?
A: The FCA reported that the total number of people accessing their pensions for the first time rose to 739,535 in 2022/23, compared to 705,666 in 2021/22.
Q: What is the main takeaway from the article regarding retirees’ decisions on pension withdrawals?
A: The article emphasises the need to respect individuals’ ability to make informed decisions based on their unique circumstances and suggests that the narrative should shift from criticising those who do not seek advice to understanding their diverse financial strategies and help support them to make their own financial decisions.