The majority of people should have a professional helping them through the decumulation phase in retirement so they do not run out of money, according to Intelligent Pensions’ Fiona Tait (pictured).
Speaking at the RP Forum, the firm’s technical director said people should be taking advice when going into the decumulation phase of retirement, although many do not.
Tait said just 58% of people have taken advice when going into drawdown, despite it being a legal requirement for people whose pot is valued above £30,000 and the risk of scams being ever present.
She said: “The vast majority of people should have a professional helping them through decumulation so they can manage not only the investment risk, but also understand things such as sequencing risk and longevity risk.
“They do not need to understand all of these things separately, but the bottom line is if they don’t do it right, they could run out of money. That’s where financial advice can really help.”
At the top of Tait’s “concern list” was what people are doing with the money taken from their retirement pot. She said almost one in five (18%) of those who draw down money from their pot are doing so to invest in something else.
While she said it was great news for those with genuine investments, within that 18% there would be people affected by pension scams.
“It’s possible – in fact, it is very probable – that people are being persuaded to take money out of their pension and invest in something they should not,” Tait continued.
She said that by far the most common thing to do with the money was to take it from a tax-efficient pension and “stick it in the bank”.
Tait said the number one reason given for this was wanting full control over the pension pot. A lot of people also cited “I took it because I could” as a reason for drawing down.
She said taking money from a pension and putting it into a bank account was not a great idea.
“If you come across any of that, any of these friendship groups that say ‘come and do this’, jump on them,” she added.
Tait said despite concerns there were good reasons to drawdown: “It’s a bit concerning that people are taking money just because they can. If they are doing it to pay for living expenses, debt repayment, those sorts of things, then fair enough.
“Of course, a big one at the moment is ‘we’d like to give money to the next generation so we can get them on the property ladder’, and if they didn’t do it this way they might borrow money, so it makes sense as an overall exercise. So there are good reasons to do it.”
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