RADICAL reforms giving people more freedom with their pension savings risk leaving women at a financial disadvantage at retirement, new research suggests.
With less than eight months to go before the government’s pensions shake-up takes effect, there are growing concerns that women could lose out because they are less able or willing to seek financial advice.
Under the changes, set out in the last Budget, retirees will be able to cash in their entire pension pot from the age of 55, including 25 per cent tax-free. The remainder will be taxed at the individual’s marginal rate, rather than the current 55 per cent charge.
The Treasury has estimated that around 130,000 people a year will take advantage of the changes to withdraw an average of £40,000 each from their pension. But there are fears that many will dilute their savings prematurely and be left out of pocket later in retirement, particularly those unable or unwilling to access financial advice.
Women are less likely than men to take financial advice, according to new research from MGM Advantage, while their smaller pension pots often mean they don’t have access to it. The average 62-year-old woman retires with private savings of £19,500, according to MGM – half the amount saved by the equivalent male.
The retirement specialist also warned that awareness of the products and services available to pension savers is lower among women.
It found that just two in five non-retired women aged 55 or over would value financial advice at retirement, compared with more than half of men the same age. Yet women are also more worried than men about being able to cope financially in retirement.
Almost half of women said they were unfamiliar with the products and services they could use to generate retirement income, compared with just 34 per cent of men, while less than a fifth of women were aware that some annuities pay out more income to people with certain medical conditions.
Andrew Tully, pensions technical director at MGM Advantage, said: “The recent reforms have given retirees more freedom and increased their choices, but this means decisions are more complex so understanding the options available is more important than ever.
“There is a real risk that without expert advice, people approaching retirement, especially women, may receive a poorer outcome than before the reforms.”
Sarah Tory, financial adviser at Shepherd & Wedderburn Financial in Edinburgh, also warned that the changes could be an issue for many women facing retirement decisions.
“There are several factors at play here: namely the size of the pension fund involved and therefore the corresponding cost of advice, confidence in the financial advice sector, previous experience and a lack of information being aimed at them about the options available,” she said.
Tory argued that women are also seen by many in financial services as the “secondary client”, with the male being the priority.
“So when the time comes for a woman to make decisions about her own retirement I am not surprised that she doesn’t seek professional advice now, because she has never done so in the past.
“But only by taking financial advice can all the options be explored and her current situation be analysed and recommendations in her best interest be made.”
Some guidance will be available to retirees from next April, but it has been significantly watered down from the free impartial face-to-face advice promised by the chancellor.
While guidance will still be free and impartial, it will be provided primarily online or by phone, rather than face-to-face, and will fall considerably short of constituting full advice.
And with many savers facing complex decisions at retirement, those unable or unwilling to take advice could be at a disadvantage.
More than a third of over-55s admit they don’t understand how annuities work, according to a recent survey by Age Scotland Enterprises, while a fifth said they find pensions in general difficult to understand. It also found that just 16 per cent of Scots welcome the changes taking effect next year.
Logan Steele, general manager of Age Scotland Enterprises, said: “While many people have welcomed changes to the pensions industry and more of us are saving for the future through auto-enrolment, it is very worrying to find that so many are unsure about the financial products available to them, especially those approaching retirement.”