Standard Life Aberdeen’s Jamie Jenkins explains why the new weight of responsibility on individuals to save for retirement means more financial education is needed about the risks, such as falling victim to pension scams
Since the introduction of the pension freedoms almost four years ago, people have been faced with a raft of new choices about how to manage their retirement savings.
Allowing people to access their own money makes sense, but the pension freedoms also place a huge burden on individuals to make what could be life-changing financial decisions, including making them more susceptible to pension scams.
Pension scams may often masquerade as legitimate investments but are designed to steal pensioners’ hard-earned life savings – and not provide the support they need to ensure them a dignified, comfortable old age.
People always had decisions to make about their pensions, but until pension freedoms came along, the impact of a bad decision would not have been as profound as it might be today.
Good decision making is critical
In light of the increase in pension scams, there has never been a better time than now for the pensions industry to amplify its fight against scams.
Despite the fact that the regulators are continuing to raise awareness about pension fraud, including the proposed cold-calling ban announced in the recent Budget, a lot more can be done to warn savers about the dangers of pension scammers and it must become a priority for the industry.
The importance of advice
In the short term, the industry must do everything it can to highlight the importance of decision making when it comes to pensions and the value of financial advice. For example, one of the most worrying aspects of a recent Financial Conduct Authority (FCA) study was the number of people withdrawing their pension pot and placing it in a low-interest bank account or Individual Savings Account (ISA) to languish in cash.
Over the longer term, individuals need to be warned of the real dangers that come with the pension freedoms, including falling victim to scammers, paying unnecessary amounts of tax or moving their retirement savings to cash to be at the mercy of inflation risk.
Financial education is the answer
The younger generations have more time ahead of them to save for retirement, so they will likely have bigger Defined Contribution (DC) retirement pots. This means they will have more to gain from making good financial decisions – and more to lose from making a bad decision.
Recent research from Standard Life and Explain the Market highlights how millennials will first turn to their mum for advice, followed by dad and, ultimately, a financial adviser.
The younger generations being auto-enrolled into workplace pensions today will trust the pension providers that are forward-thinking, innovative and, ultimately, easy to deal with, offering accessible digital services.
But it’s up to our industry to arm each of the generations with greater understanding and insight, before they could make what could turn out to be a bad financial decision, or worse, fall victim to a pension scam.
Jamie Jenkins is Head of Global Savings Policy at Standard Life Aberdeen. Standard Life accepts no responsibility for advice that may be formulated on the basis of this information.