A nationwide study of 2,002 UK residents over the age of 18, commissioned by retirement specialist IFA Portafina, showed that only one in five baby boomers (20.5%) aged between 55 and 75, were able to correctly identify the description of the Lifetime Allowance.
The respondents also struggled to describe the Annual Allowance correctly: only 35% of over 55-year olds’ knew that it was the (£40,000) annual limit that can be paid into a pension each year and still receive tax relief in accumulation.
Nearly as many (31%) wrongly thought the Annual Allowance ‘restricted the amount you were allowed to take out each year without being taxed’ which implies a confusion with the Money Purchase Annual Allowance.
Less than half of baby boomers (47.5%) understood the term 'income drawdown’ despite this currently being the second most popular method of withdrawing DC pension savings - currently used by a third of all people accessing their pension for the first time.
Awareness of technical pensions terms and acronyms was understandably very low. The terms which received highest recognition amongst baby boomers were, perhaps worryingly, ‘small pots’ - understood as a pension term by 13.5%; and ‘contribution holiday’ which 24.5% of baby boomers identified as a pensions term.
Jamie Smith-Thompson, Managing Director, Portafina, explains:
“This research highlights that there is still a widespread lack of knowledge of decumulation options and tax limitations associated with optimising DC pensions savings and withdrawals. We know from the FCA’s statistics that nearly a third - 31% - of income drawdown purchases are still non-advised, which is worrying given the increasing propensity to ‘over-drawdown’ and the minefield that is investing for growth as well as steady income.
“The continued use of technical language on paper-based statutory documentation does not help. Providers’ wake up packs and annual statements need to become more visual, more real-time and available in a clearer format on all digital devices.”
