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Majority of advisers recommend using tax-free pension lump sum to pay off a mortgage or other debts

Majority of advisers recommend using tax-free pension lump sum to pay off a mortgage or other debts

pensionsPrivate investors and financial advisers have polarised opinions on how to use the 25% tax free lump when they are aged 55, according to a research study on reactions to the new pensions ‘freedom’ legislation carried out on behalf of Four Broadgate.

The majority of advisers recommend paying off a mortgage (68%) or another debt (61%).Only a small portion of private investors, 13% and 19% respectively, would choose this option.  The most popular way choice for private investors is to invest in equities (34%) or treat themselves to a holiday or put the money in a bank account (32% for both).

Financial advisers and investors also had differing opinions on how advice should be paid for. Ninety three per cent of advisers wanted an annual charge based on assets under management, while only 52% of investors welcomed this approach. Thirty one per cent of investors preferred  to pay for each task, while 17% wanted  an hourly rate.

The survey was conducted in February and March 2015 among 207 investment advisers and 526 private investors aged between 35 and 64. Sixty four per cent of investors managed their own investments; 24% split the management of their assets between an adviser and making their own decisions; and 15% solely used a financial adviser.

Other findings include:

  • 60% of advisers think it’s a good idea for investors to take a 25% lump sum from their pension pot at 55
  • 40% of investors were planning to use  the opportunity to take a 25% lump sum and 28% were undecided
  • 36% of investors were undecided about what to do with the remainder of their assets
  • 73% of advisers recommended that investors should allocate the remainder of their assets to an income drawdown policy
  • 47% of investors thought their knowledge of the new pensions legislation was good or very good
  • 86% of advisers thought that private investors only had an average or poor knowledge of the new pension laws
  • 45% of advisers thought the changes would be good for business

“The new pension legislation presents some exciting options to people saving for retirement, but it’s clear that there is a still a lot of uncertainty among investors about the most appropriate route to take”, says Mark Knight, Director at Four Broadgate. “According to research the amount of money in ‘motion’ annually in the UK  through contributions to workplace and personal pensions and via money moving into post-retirement decumulation products is set to rise by over 15% to £180bn by 2020. The opportunities  for asset managers and insurance companies are enormous.”

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