Older savers clueless about pensions

Nearly one million pensions have entered drawdown since the freedoms were introduced in April 2015

Older savers are clueless about their pensions and most will run out of money in retirement, research reveals.

An exhaustive study from the pension industry found savers were too scared to check their pots, and underestimated how long they will live.

Workplace savings firm the People's Pension warns that the nation is now sleepwalking into retirement — nearly six years after the pension freedoms were introduced.

The research, which has involved in-depth interviews with sample groups of savers since 2015, says those nearing retirement need more help to get it right.

Now, most retirees choose to keep their pension money invested and draw down an income — perhaps after taking a 25 per cent tax-free lump sum.

Since the freedoms were introduced in April 2015, nearly one million pensions have entered drawdown. It allows savers to keep their pension invested and take an income from it — experts recommend no more than 4 per cent a year.

However, if it is not invested efficiently or too much is taken out, the saver could quickly deplete their pot.

Yet the People's Pension says most are likely to make ill-informed investment choices and take money out too quickly — meaning most will be solely reliant on the state pension by their mid-80s.

The firm also warns that not nearly enough savers were clued up about how they should best invest and access their retirement money.

The behavioural research, done in conjunction with asset manager State Street Global Advisors, says savers can only choose between making decisions themselves or paying for ongoing financial advice.

Yet the report found their choices often appeared 'illogical and irrational', adding: Members going it alone are riddled with behavioural biases that prevent them from thinking about their later years, they struggle with numbers, they have no knowledge of investments, and consistently misunderstand or are ignorant of the risks they face. This situation is far from ideal.