Survey results reveal the fears Trustees have for members approaching retirement.

21st June 2021

Pension scheme members now have to grapple with a multitude of risks which have become increasingly complex and uncertain. In light of this, WEALTH at work has conducted a survey with the Pensions Management Institute (PMI) to investigate the concerns Trustees have for their members in the run up to their retirement and what support provisions they have in place.

Some of the key findings include;

• 94% of Trustees fear their members approaching retirement will be targeted by scammers.
• 89% of Trustees are concerned that their members may not understand the tax implications of accessing their pension.
• 80% of Trustees have concerns about their members’ lack of understanding of the risks they face if they transfer out of their defined benefit scheme.
• 70% of Trustees worry about a lack of engagement with their members at retirement.
• 60% of Trustees are apprehensive that their members’ money will run out too soon in retirement.

Jonathan Watts-Lay, Director, WEALTH at work, comments;

“The pandemic has affected nearly all of us and none more so than pension scheme members who are approaching retirement. There are many risks around accessing pensions which have become increasingly complex and uncertain. Our research findings highlight that Trustees recognise this situation and have great concerns for their members at retirement.”

He explains; “As the findings show, nearly all Trustees fear their members nearing retirement will face predatory attention from scammers. Reduced household income caused by the pandemic has meant that some members are more vulnerable than ever and a report by Action Fraud found that pension scams had become one of the most common types of fraud to occur last year. Unfortunately, it’s a problem that has been around for some time and the Pension Scams Industry Group estimate that £10bn may have been lost to pension scams by 40,000 people since 2015.”

Watts-Lay adds; “Trustees also have fears around taxation for their members at retirement. They are right to be concerned as individuals can easily incur huge tax bills unknowingly when accessing their pensions, all of which can have a material impact on income levels in retirement. Members need to be aware of the tax traps which include moving into a higher marginal income tax rate when cashing in defined contribution pension pots, triggering the Money Purchase Annual Allowance, or losing out on the ability to pass on a pension inheritance completely free of tax.”

He comments; “These risks also equally affect defined benefit members who are considering transferring their pension. Indeed, the majority of Trustees in our survey have concerns over this. Assessing whether it is right to transfer is highly complex with multiple risks to consider around how to manage the money once transferred. Ensuring access to appropriate advice is key, which is of course, a requirement for anyone looking to transfer a defined benefit scheme over the value of £30,000.”

Watts-Lay states; “With these findings in mind, it comes as no surprise that so many Trustees are concerned that their members’ money will not last the duration of retirement. This may be due to many reasons including poor decision making at retirement, not saving enough throughout life, underestimating life expectancy or simply not managing their investments appropriately during what may be 30 years or more in retirement.”

Support levels are on the up

The survey also found that almost half of Trustees provide financial education (49%) for their members at retirement, which is an increase of 14 percentage points since our survey in 2019, where 35% of Trustees reported that they provided financial education.

Almost half (46%) of Trustees provide or facilitate financial guidance for members at retirement. This has seen an 18 percentage point increase from 28% since the 2019 results.

Nearly a third (30%) of Trustees are providing or facilitating regulated advice for their members’ at retirement. This has seen an uplift of 9 percentage points from 21% since the 2019 results.

Watts-Lay comments; “Many members lack the resources to realise the multiple risks around accessing their pensions which the pandemic has glaringly put into focus. It’s therefore really encouraging to see that more Trustees are now putting financial education, guidance and regulated financial advice in place to help their members understand their retirement income options, as this support is needed now more than ever.”

He adds; “Carrying out due diligence on providers can make the process far more robust. This should include checking that any financial education and guidance providers are workplace specialists with experience in providing support to members. This will help members understand key issues at retirement such as tax implications, risks around DB transfers and how to spot a pension scam. Due diligence on regulated advice firms should cover areas such as the qualifications of advisers, the regulatory record of the firm, compliance processes (e.g. compliance checks of 100% of cases), pricing structure and experience of working with employers and Trustees.”

Watts-Lay concludes; “Ultimately, empowering members by providing them with access to appropriate support can help them become more financially resilient and should lead to better outcomes for all.”