A fundamental lack of engagement with finance could threaten the success of the Government’s pension reforms, the Strategic Society Centre warns.
The think-tank says a default “automatic income plan” is needed to protect savers who have little experience of investment and warns the UK is in danger of following the Australian retirement market, where pensioners are running out of money too soon.
Earlier this month, consumer group Which? called for a nationalised drawdown provider to guard against high charging contracts.
Drawdown is expected to grow in popularity following the introduction of the pension freedoms that have seen annuity sales dive.
However, according to the Society’s report, only a quarter of 55 to 65-year-olds keeps track of the stock market, while one in three say they are aware of inflation levels.
In addition, the research reveals only 12 per cent of ‘low-income’ pensioners have an investment product, 34 per cent do not have a savings account or Isa, while 41 per cent admit to not following financial index.
Strategic Society Centre direcotr James Lloyd says: “The results of the Government’s April pensions revolution will ultimately depend on the financial capability and decision-making of millions of UK workers. However, this detailed research on the financial capability of DC pension savers approaching retirement shows worrying levels of financial disengagement, raising questions as to how effective people will be in seeking good-value, appropriate products throughout retirement, that protect them from changes in inflation and investment risk.
“Our research suggests the Government’s pension freedoms could repeat the experience of countries like Australia, where freedom and choice for retirees has ultimately resulted in lower incomes and growing calls for reform.”