Ten years of pension freedoms

It has now been ten years since George Osborne, the Chancellor back in 2015, introduced the so-called ‘pension freedoms’ for individuals with Defined Contribution pension savings. At the time, these changes were viewed as quite revolutionary and were a surprise to many in the industry.

But how do both consumers and advisers feel about these changes now that a decade has gone by? AKG, who carried out pension freedoms themed research projects in 2015, 2018 and 2022, analysed consumer awareness and advisers’ views in their latest research project, entitled ‘Ten Years of Freedoms – Lessons, Gaps, and the Road Ahead’. Here I reflect on some of the key findings from the paper.

Consumers awareness of pension freedoms

Despite it being ten years since the changes were introduced, AKG found that overall consumer awareness wasn’t particularly high. In fact, 39% of those surveyed were totally unaware of the changes, which illustrates the industry still has lots to do when it comes to educating consumers about pensions.

Just under half (47%) of those surveyed expressed awareness of pension freedoms, although many (19%) weren’t sure how the changes impacted them personally.

General knowledge of pension rules and accessibility was also tested by AKG via a series of statements. The results also show a very mixed picture. For example, just over half of the research participants (54%) knew that 25% of pensions can be taken as tax-free cash while a similar number (55%) knew that pension savings can be accessed from age 55.

When asked whether an annuity has to be purchased to access pension savings, 30% said this wasn’t the case. However, 52% said they didn’t know or weren’t sure. Similarly, 43% didn’t know or weren’t sure whether pension funds could be left to dependants in a will.

Adviser take on pension freedoms

Adviser feelings about pension freedoms were also mixed. On a positive note, 51% of survey respondents felt that more flexibility in accessing/withdrawing money from retirement savings is good while 47% felt more personalised retirement strategies can now be planned with clients.

On a more downbeat note, 43% felt more flexibility and wider retirement options are confusing for clients while 41% felt more flexibility means there is now more chance clients will run out of money in retirement.

Notably, 42% of advisers who participated in the survey felt increased use of drawdown has exposed more clients to investment risk at the expense of income security. However, as Paul Richards of Fidelity Adviser Solutions commented within the AKG paper, “Guaranteed lifetime income products and lower-volatility growth options can work together [within drawdown] to help support better client outcomes. For example, providing a guaranteed income solution can ensure clients don’t run out of money while smoothed pension funds can help provide growth while mitigating some of the day-to-day market volatility and sequencing risk.”

Leaving aside positive or negative sentiment on the client impact, pension freedoms have undoubtedly provided a great opportunity for advisers to promote their services and deliver vital support to clients with retirement planning options. However, the new flexibilities have also served to exacerbate the challenges faced by non-advised consumers who have to navigate retirement without expert planning support.

• Read the full AKG research paper
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