The media has been full of ‘pension bonanza’ headlines to describe the pension freedoms that come into effect this April. A lot of articles have focused on the dangers of people using up their pensions in a crazy burst of consumer spending giving rise to the ‘Lamborghini’ pensioner stereotype. Thankfully, it appears that the average pensioner is more sensible than this and according to the International Longevity Centre - UK (ILCUKs) research of over 5000 pre-retirees, almost 75% of them prioritise a secure guaranteed income over an income that might vary depending upon financial markets.
Whilst those about to retire may have a good grasp of their needs, the ubiquitous ‘pensions give-away’ headlines may well have contributed to another issue, one which could cause retirees to make poor decisions when it comes to deciding just how to draw upon their pension savings.
A recent survey by Scottish Widows think tank – the Centre for the Modern Family – shows the extent of the pressure on individuals coming up to retirement to support other family members rather than use it to support themselves. The Scottish Widows report states that 27% of the circa 2000 people surveyed said they felt pressured to use the freedoms to withdraw savings and give money to their immediate family. 45% felt that they would use their pension funds either to provide their children with house deposits or to support elderly relatives in care.
Thus the current generation will spend huge amounts of their savings to support the previous and next generations, leaving them woefully underfunded to provide for their own old age.
It seems that the general view of pension savings, reinforced by the media hype, is that pension pots are like a lottery windfall. This lack of clear understanding by others makes retirees vulnerable to pressure from family eager to share in the good fortune.
While it may be politically beneficial in the upcoming elections to make it seem as if the pension freedoms are a bonanza give-away, the reality is that this approach will contribute to the difficulties people have in making the right decisions as to how best to draw down their pensions. Fear of seeming mean sitting on a ‘lottery win’ whilst some family members struggle will certainly make it harder for them to make the prudent decisions necessary to maintain their own lifestyles in retirement.
Current guidance is focused on retirees, but the media and the politicians need to stop hyping the pension freedoms in order to get across to the general public, not just retirees, that pension pots are the deferral of income from previous years to future years. Otherwise the pressure on retirees to squander their savings could be far more difficult to resist. In the long run we may all be dead, as John Maynard Keynes famously said, but unless we change the way everyone thinks about pension pots, it could be a poverty-stricken final lap for far too many.
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