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Fifth of pension savers build up savings pot due to retirement freedoms - report

Published 14/12/2015

20% of pension savers are building a bigger savings pot because of new retirement freedoms, says Aegon UK
20% of pension savers are building a bigger savings pot because of new retirement freedoms, says Aegon UK

One in five pension savers has decided to build a bigger savings pot as a direct result of the new retirement freedoms, a report has found.

Research from pensions firm Aegon UK found that 20% of those with a pension said they had made up their minds to increase their contributions as a result of the reforms, which were launched in April.

Those who had increased their contributions as a result of the freedoms were typically putting £204 a month more away than previously, according to the findings.

People in London and the South East were particularly likely to want to save more as a result of the new flexibilities, while those in Northern Ireland were the least likely, according to the findings.

The new retirement flexibilities allow people aged 55 and over to use their pension pot how they wish to, subject to tax. Previously, they would have been required to buy a retirement income called an annuity with their pension pot.

Annuities have been controversial in recent years due to disappointing rates and concerns that people were not shopping around to get the best deal.

While there has been much research on how the reforms have affected people retiring now, Aegon's report gives an indication of what the impact of the freedoms has been for the next generation of pensioners.

The report backs up previous suggestions that the reforms could encourage people currently of working age to put more money into their pension savings in the knowledge that, when they eventually come to retire, they will be able to have control over their own cash.

Using information given by those surveyed about their finances and when they expect to retire, Aegon estimates that 8% of the UK population are on track for the retirement they want. This is up from 7% in May of this year, just after the new pension freedoms were introduced.

It said that while this may seem only a small percentage increase, it equates to 405,000 more people being on track for the retirement they want.

Women were found to be generally less well-prepared for their retirement than men, and had £20,170 saved in their pension pots typically, while men had around £56,481. Women were less likely than men to say they had checked the performance of their retirement savings.

Aegon suggested that the pension freedoms are having a positive effect on people's financial behaviour generally.

In the last six months, 29% of people with a pension had checked the performance of their retirement savings and 26% had taken steps to review their retirement plans.

But the report also reinforced concerns that fraudsters are using the reforms as an opportunity to strike by bombarding people with offers of dubious schemes.

One in five (19%) people said that at some point they had received a cold call offering them a "free pension review" or an "investment opportunity". More than one in 10 (11%) people surveyed had received a text message offering this.

And one in six (15%) people said they received an offer suggesting they could access their pension pot before the age of 55.

The scheme to automatically enrol people into workplace pensions, which started in 2012, has also generally been credited with reinvigorating people's appetites for pension saving, with a much higher take-up than expected.

Around nine in 10 people are staying in their workplace pension after being automatically placed in it.

More than 3,900 adults of working age took part in Aegon's research.

Mark Till, managing director of Aegon UK Direct, said: "Industry reforms such as auto-enrolment and pension freedoms are working, and they are already having a positive effect on saving behaviours, with more people engaged, and ready for the retirement they want."

Referring to the numbers of people being contacted by pension scammers, Mr Till said: " With this number of people contacted, more financial education and awareness is vital.

"Government and the pensions industry need to take collective responsibility to ensure the UK public are adequately protected."

Here are tips from Aegon to avoid fraud:

:: If it seems too good to be true, it probably is.

:: Ignore and delete spam emails and texts.

:: Never give out personal information to a cold caller, just hang up.

:: Never be rushed into making a quick decision.

:: Do not let anyone in to your home unless you are sure they are genuine.

:: Read any documents carefully. Do not sign anything unless you fully understand what you are getting into. You may inadvertently sign your pension away.

:: Tell your pension provider or adviser if you have any concerns. Report any suspicions to the Financial Conduct Authority (FCA) at fca.org.uk and Action Fraud at actionfraud.police.uk.

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