Around 39 per cent of participants in DB pension schemes are concerned they won’t have enough money to last them into retirement and this rises to 46 per cent of those who are close to retiring aged 45-54, according to a new study by Barnett Waddingham.
According to the study, nearly 13 per cent of DB members—18 per cent of those under 40 and 8 per cent of those over 40—said that the growing cost of living had increased their likelihood of leaving their DB pension. These savers run the danger of being victims of fraud because any money transferred out of a DB pension wouldn’t be available to members until they were 55.
When it comes to making choices regarding their DB pensions, many members exhibit a lack of confidence. More than one in five people, or 22 per cent, exhibit a lack of confidence; this number rises to 30 per cent for women.
Almost 58 per cent of members who are 40 or older, who are most in need of support in the months and years leading up to retirement, report that they have not received any assistance from their DB scheme to help them make decisions regarding their pension.
In contrast, 51 per cent have received assistance. Among them, 31 per cent have benefited from regular discussions about their options in the years leading up to their anticipated retirement, 24 per cent have received financial advice from an independent financial adviser (IFA) appointed by the scheme that they paid for themselves, and 22 per cent have received advice from an IFA that the scheme paid for on their behalf.
Almost 60 per cent of people without assistance would welcome help from their scheme, compared to 40 per cent who don’t want any. Among those who haven’t received support but would like some, 43 per cent want more frequent communications leading up to retirement, 41 per cent want private sessions with a financial advisor or other expert, organised by their plan, and 32 per cent want financial advice from an IFA paid for by the plan, while 22 per cent are content to pay for that advice themselves.
Nearly 48 per cent of DB pension trustees report that their plan has paired with a specialised IFA, with the scheme or employer sponsor bearing the cost of advice, while 40 per cent have done so with members bearing the cost. 38 per cent of respondents claim to have contributed to the member’s out-of-pocket expenses for financial counselling. These results are significantly high and were probably caused by the survey’s focus on large schemes, as smaller ones typically don’t have as extensive offers.
Meanwhile, 76 per cent of trustees feel that, as long as they have the sponsor’s backing, schemes should work in tandem with IFAs to support members as they approach retirement, while less than 22 per cent disagree.
Barnett Waddingham partner Debra Logan says: “Now more than ever, it’s vital trustees and scheme sponsors are rallying to provide the best support to members. The cost-of-living crisis is creating a ripe space for scammers to prey on those struggling to make ends meet. TPR’s guidance last year gave trustees the power to halt suspicious transfers if there’s a heightened risk it may be part of a scam, but its vital members feel empowered to spot scams themselves too. Fundamentally, nobody under 55 could transfer out of their pension into cash – anybody who says they can make that happen is lying.
“But there is a clear gap in knowledge and confidence amongst members. Much of this can be solved through better communication and knowledge-sharing, as well as bespoke support from an IFA. It’s positive that there’s a clear alignment amongst members and trustees in favour of offering financial advice via a scheme – the next step is to put that into practice and ensure all members have the tools they need to make the best decisions about their pension.”
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