Half of individuals (50 per cent) aged over 40 have the basic knowledge required to make good pension decisions, according to new research from Just Group.
However, Just Group’s Retirement at Risk Index also found that 7 per cent of over-40s were considered to be at “high risk” of making “poor later-life financial choices”.
Furthermore, 43 per cent of those surveyed were assessed as at “medium risk” after they were asked about their understanding of three retirement basics.
Just Group group communications director, Stephen Lowe commented: “By asking questions based on capability and attitude the index seeks to discover whether people have the basic understanding about what retirement entails and whether that effects the pension decisions they are likely to make.”
The questions posed to those surveyed were: “How long do you think that you will live,” how much is the current state pension per month,” and “how will you use your own pension?”
Just Group’s report found that “Generation X” (those aged between 40 and 54) underestimated their longevity by an average of around 10 years.
It also discovered that around seven in 10 over-40s underestimated the value of the full state pension. On average, those surveyed underestimated the state pension (£690 per month) by around £120 per month, while nearly one in five said that they “did not know what they expected to receive”.
Additionally, when asked about how they would use their pension, 38 per cent responded that they would keep it invested, 35 per cent would turn it into an income for life and 27 per cent said that they would take it as a lump sum.
Lowe added: “We are seeing record numbers of people accessing their pension pots flexibly and, as it’s still too early to know the longer-term consequences, it is crucial that the industry strives to support consumers with their decisions wherever possible.
“Guidance and advice are the best antidotes to the dangers that lurk when choosing how to use pension money, such as paying unnecessary tax or taking too much too soon.”