PEOPLE approaching retirement are suffering from "shockingly low" levels of pensions knowledge, putting them at risk of squandering their savings when they are handed new freedoms over their money pots this spring, new research has warned.
Women are more likely to be in the dark over basic terms which can be crucial when weighing up pensions options, according to a report, which was published by think-tank the International Longevity Centre-UK (ILC-UK) and guided by the Government's older workers champion Ros Altmann.
Research carried out among more than 5,000 people aged between 55 and 70 years old who are yet to retire or draw on their pension found that only one in three (34 per cent) of women said they understand what an annuity is, rising to just over half (54 per cent) of men.
The report warned that such low levels of financial capability could be exacerbated by new pension freedoms which are set come into force in April.
This could "result in people squandering their pension wealth, either by doing nothing in the face of complexity, by channelling money into high-risk investments or by taking all of their money out and leaving it in a low interest bank account," it said.
The findings came as a separate report from the Centre for the Modern Family, a think-tank set up by Scottish Widows, suggested that nearly one in three people aged over 55 expects to come under pressure from family members to dip into their savings after the new pension freedoms come into force.
From April, instead of being herded towards buying an annuity, people with defined contribution (DC) pension savings will be able to access them as they wish from when they turn 55, subject to their marginal rate of income tax in that year. They will be able to take their money in one big lump if they want to, or in a series of slices.
But the ILC-UK report found that nearly four in 10 (39 per cent) people with a DC pension who are less than a year away from retirement have yet to make a plan for their cash.
Dr Altmann said that levels of understanding of pensions appear to be "shockingly low", adding: "The problem is particularly severe for older women."
Free, impartial guidance will be launched for people making use of the pension freedoms, which will go under the branding "pension wise".
Dr Altmann said the pension wise service should be extended to all age groups as a requirement of the Government's scheme to automatically place people into workplace pensions.
ILC-UK chief executive, Baroness Sally Greengross said: "There is an urgent need to determine how we support those who fail to take guidance or for those who take guidance but are still liable to making poor decisions."
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