BLOG: Cold, hard cash

Written by Talya Misiri
31/05/17

When it comes to financial savings, people like to be in control of their cash. At a time where we are able to learn exactly how much is in our bank accounts at a click of a button, however, pensions are still lagging behind.

With the initial high uptake of lump-sum withdrawals since the introduction of the pension freedoms in 2015, it seems that the desire to have direct access to monetary savings funds was confirmed by these retirees.

Speaking at a research briefing earlier this year, The People’s Pension director of policy and market engagement Darren Philp and State Street Global Advisors head of DC investment strategy Alistair Byrne, referred to a lack of tangibility when it comes to pension savings.

There seems to be a disconnect between pension savings and themselves (savers), in comparison to bank accounts and themselves, Philp noted.

Byrne continued, claiming that there is an issue of tangibility, money is “tangible when in your ISA and “not” when in a pension fund”.

SSGA and TPP also highlighted that from their qualitative study of 80 pension savers, the majority of those who chose to withdraw all of their pension pot, “parked it” into another savings fund.

As a result, one cannot help but ask is this lack of palpability creating a space between pensions and ourselves? And, if so, how can this be tackled?

When considering the former, it is possible to use this as a reason for increased preferences for other savings products including the Lifetime ISA, which is sometimes viewed as an alternative to a pension and cash ISAs. It is clear that some of the population are in favour of these products as they are able to track exactly how much they are saving and so feel a greater connection to their money along with a possible increased drive to save.

In comparison, when it comes to pensions, an exact figure is not completely attainable and so can blur savers’ view of their finances.

Moreover, with annuities no longer being the only or default option for accessing our pensions, multiple pensions drawdown options scream for the need for financial education and advice. As individuals are unable to fully grasp the complexities of different pensions options available to them, they are left confused and potentially deterred from pension saving.

Whether it be education provided by employers or the decision to take independent financial advice, these will assist savers in obtaining a clearer understanding their funds and the long term view and benefit of saving into their pension.

Furthermore, it is hoped that the pensions dashboard will alter how savers view their pensions. Although the service won’t provide an exact amount of an individual’s total pension savings, it will give an approximate figure of their total pension savings and an amount for each pot they have accrued from different providers.

With these, it is more likely that savers will feel more in control of their pension funds, enhance their awareness of how much they have, how much they need, options available to them and eventually enable them to convert their pots into physical, cold hard cash in retirement.

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