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Pension freedoms triggers retirees to change behaviour

We take a look at how pension freedoms have changed people's behaviours for the better.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

When George Osborne stood up to announce the introduction of pension freedoms, everything changed.

Journalists splashed the headlines with fears that retirees would destroy their lifelong savings. They predicted they’d blow their money on Lamborghinis, yachts and extravagant holidays.

It’s now four years on, and over £28 billion in flexible pension withdrawals later, the predictions were wrong. In reality, people are actually making better decisions than first feared when it comes to their hard-earned pension savings.

Planning ahead

We all know the expression ‘the sooner the better’, and that couldn’t be truer than when it comes to planning for your retirement. Back in 2015, 43% of our clients only started planning a year before retiring. But today that’s down to just 24%.

In fact, our clients are planning well in advance. The majority start making their plans at least three years before they access their pension.

Getting a plan in place early can make a huge difference to your retirement and the income you might receive. By finding out how much your pension might pay, or how much income you might need early on, you can make up for any shortfalls.

When did you start planning to take benefits from your pension?

Source: Hargreaves Lansdown post-retirement survey. Answers from April 2015 and July 2019.

Our household budget calculator can help you work out how much money you’ll need. And you can use our pension calculator to find out what your pension might pay.

Household budget calculator

Pension calculator

Get your savings on track

If you get a plan in place early, you’ll give yourself more of a chance to retire on your own terms. You’ll have the time to put things right if your pension savings aren’t quite where you’d like them to be.

For instance, by saving an extra £200 a month from age 50, you’ll end up with £40,800 more in your pension at age 67- that’s a huge difference to anyone’s retirement income. Plus, if you make a personal contribution you’ll automatically receive basic rate tax relief from the government (20%). Meaning you’ll actually end up with £51,000 in total. These assumptions don’t take into account growth, interest or charges. Please remember investments will rise and fall in value, so you could get back less than you put in.

Pension and tax rules change and benefits depend on your individual circumstances. Once you’ve put money in a pension you can’t usually take it out until you’re 55 (57 from 2028).

It’s also a lot easier to grow your money across 17 years than a couple of years. Making the smallest change to your pension’s investment performance before you need to access your pension, could make a big difference to your retirement fund.

Let’s take a look at the difference between 2% and 3% investment returns on a pension worth £100,000 over 17 years. Just a 1% increase from 2% to 3% will mean you’ll have £25,260 more, by following the same assumptions. Remember though, investments can fall as well as rise in value, so you could get back less than you invest.

Seek a helping hand

Our research shows that our clients are more likely to turn to people for help than before. When pension freedoms were first introduced in 2015, 46% were going it alone. Nowadays that’s reduced to 36%.

There are free services like Pension Wise that can help you understand your options. Pension Wise is an impartial service provided by the government. Encouragingly a significant number of our clients are now using this service.

We recommend you get in touch early. From 50 you can book an appointment over the phone, or face to face. Contacting Pension Wise as soon as possible allows you to take action to change your financial future. Simply speaking to them when you need to access your pension will only help you to understand your retirement options.

Who did you seek help from in making your decision?

Scroll across to see the full chart.

Source: Hargreaves Lansdown post-retirement survey. Answers from April 2015 and July 2019. Please note, this question allowed multiple answers.

Even talking over your retirement plans and household finances in general with a spouse or partner can be useful. After all two heads are better than one.

You can find out more about your retirement options by downloading our guide. Or you can speak to our retirement experts. They’re always happy to help and are available six days a week: Monday-Thursday 8am-7pm, Friday 8am-6pm and Saturday 9:30am-12:30pm.

What help is available?

You can find out more about your retirement options by downloading our guide. Or you can speak to our retirement experts on 0117 980 9940. They’re always happy to help and are available six days a week: Monday-Thursday 8am-7pm, Friday 8am-6pm and Saturday 9:30am-12:30pm.

What you do with your pension is an important decision. We strongly recommend you understand your options and check your chosen option is right for your circumstances. Take advice or seek guidance if you’re unsure.

This article and our calculators are not personal advice. We offer a range of information and support to help you plan your own finances. We also have an award-winning advisory service that can help you achieve your goals.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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