Philip Brown by Philip Brown |

Every year, around 600,000 pensions are accessed for the first time. These new retirees begin the complex process of decumulation – getting rid of the assets they’ve built up in their pension pots to maintain their standard of living. But surprisingly, before selecting how to withdraw their pension, less than half of retirees seek professional advice.[i]

The cost of advice isn’t the only issue

ABI research found that 72% of customers would not pay for financial advice for various reasons. The first and most significant issue is the cost of regular advice and the absence of other choices. According to ABI polls, nearly half of those surveyed (46%)[ii] prefer one-off advice if it were easily available, while just 12% prefer continuous advice.

However, money is not the only concern. Pension Wise offers free guidance, but data suggests that just 14%[iii] to 22%[iv] of those retiring use it before accessing their money.

Participants in our five-year longitudinal study, ‘New Choices, Big Decisions’, told Ignition House researchers that retirement had become ‘scary’ to contemplate. They don’t seek advice because they believe pensions are too complicated for them to grasp, or because they are naturally concerned about the sustainability of their investments.

The pitfalls of no advice

More than half (53%) of individuals who accessed their pension savings in the previous 5 years claimed their 25% tax-free lump amount.[ii] According to our findings, individuals are making these and similar decisions without considering the implications. Participants told us that taking the cash was the easy decision because it was tax-free, that they considered the lump sum as a mid-life “bonus,” or that they “simply didn’t think too much about it.” 

Many people didn’t see their option as a retirement income decision, and many are unaware of the consequences of decumulating into cash. They may be unaware of the possible effect on their long-term earnings.

Shifting from automatic to manual

During the accumulation stage, the majority will be invested in a scheme default fund or glidepath, so they don’t have to think too hard about it.

In comparison, once they reach retirement, people have the more difficult task of converting a pot of cash into an income. Our research shows that many people make pension decisions without adequate thinking or comprehension and without advice.

We trust individuals to be risk managers, actuaries, and investment gurus, and you’ll probably need to be a little bit of everything to produce a decent outcome. We, as an industry, place unrealistic expectations on individuals to make complex decisions for themselves.

FCA solutions fail to address all the issues

The Financial Conduct Authority’s (FCA’s) recent retirement outcomes review provided a thorough examination of the issues that people confront when collecting a retirement income, but the remedies presented did not adequately address the issues raised.

Consider investment pathways. They can help individuals from mistakenly decumulating into cash when they use flexi-access drawdown. However, they don’t address the other significant risks. These include:

  • Withdrawing too quickly and running out of money
  • or withdrawing too slowly and not enjoying the retirement they had planned.

Pathways, therefore, aren’t a sound strategy for decumulation in occupational pensions.

Customisable, simple, and easy to compare

Most individuals want pensions that don’t require them to have financial skills to work successfully. Affordable, clear decumulation products that keep people invested for growth in their early retirement years while providing greater assurance as time passes. These pensions must be customisable while being simple to maintain on their own and easy to compare with other pensions available.

The government’s strategy to increase the number of pension savers has proved enormously effective. The industry’s focus must now be on providing pensions and services that assist people in achieving the sustainable retirement they deserve. Positive pension outcomes should not be limited to those who can afford guidance; they should be accessible to everyone.







This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.