Pension flexibility leading over-50s to change their retirement plans

The pension freedoms have led many over-50s to change their retirement plans, new research reveals.

A survey by Retirement Advantage found that one in five (20%) over-50s have altered their plans because of the pension reforms, driven by the ability to access all of their pension savings from the age of 55.

The retirement specialist described this behaviour as ‘demob fever´ as official figures show that most consumers (72%) accessing their pension pots did so before the age of 65, either through fully withdrawing their savings or entering drawdown.

Of those who have changed their plans, 44% are planning to retire earlier — with 21% stopping work between one and three years sooner and 23% planning to retire at least four years earlier. Another 28% plan to retire later, while 29% said they now plan to work part-time in retirement.

Introduced in April 2015, the pension freedoms mean that savers no longer have to purchase an annuity with their defined contribution pension. Instead, you can choose to withdraw all of your pension in one go or keep part of your pension fund invested in the stock market while drawing down an income from it.

Commenting on the survey findings, Andrew Tully, pensions technical director at Retirement Advantage, said: “The increased awareness around pension flexibility has certainly made people sit up and rethink their retirement, with a significant number changing their plans as a result.

“Official data shows most pensions are now accessed before state pension age, which demonstrates what a game changer the pension freedoms have been. The regulator has recognised the need to alert people to the fact that your 55th birthday should not necessarily be a starting signal to begin accessing your pension.

“Whatever decisions people make on the back of flexibility around their pension choices, a critical first step will be to consult a professional financial adviser. An adviser will be best equipped to ensure that pension freedom ‘demob fever´ won´t cause problems further into retirement.”

The Financial Conduct Authority recently proposed new measures that would require pension companies to give consumers more guidance about what to do with their pension, with specific warnings about risks, and provide ongoing support once consumers have accessed their retirement savings.