People should be 'auto-enrolled' into Pension Wise guidance when looking to access their pension pots as research suggests an increasing reliance on pension money to fund everyday lives, provider Just has warned.
Just referred to figures from HM Revenue and Customs (HMRC), which found more than £10bn had been accessed flexibly since the introduction of pension freedoms in 2015, with the highest number of people accessing their pensions flexibly in Q1 this year.
The group said the fact an increasing number of people were withdrawing small amounts from pension pots indicated a growing reliance on withdrawals to fund day-to-day living costs.
It pointed to another report from YouGov - The Impact of Pension Changes - that found the number of those aged 50+ who used withdrawals for everyday expenses had risen from 21% in May 2015 to 29% by the end of 2016.
The firm argued those wishing to flexibly access their pension pots could be missing out on vital savings for later life and should therefore be automatically enrolled into Pension Wise guidance, similarly to people being auto-enrolled into workplace pensions.
Communications director Stephen Lowe (pictured) said: "We think opt-out rates would be low and it would help people make more informed decisions.
"We don't have the official figures we need to tell us what is really going on. However, there are some signs that with inflation rising, wage growth muted and tighter consumer credit, some people are seeing the appeal of withdrawals to supplement their income while still working."
What's more, smaller average withdrawals were most likely being made by those with more modest pension pots, who would be less likely to take financial advice, Lowe said.
"Pension Wise was created alongside pension freedoms and people's ingoing views [on managing retirement income] tend to be different to their outgoing view after using the service," he added.
"Given that there are finite resources for financial education, opportunities to implement behavioural nudges and rules of thumb are important."
Freedom to reinvest
YouGov also found almost two fifths (38%) of over 50s would be prepared to reinvest the money they had withdrawn from their pensions. Lowe said this showed why a guidance "sense check" was important.
"The idea of pension 'freedom' has fostered a strange perception that money is somehow being kept captive and people must liberate it, rather than keeping it to grow safe from theft, fraud and tax," he said.
He added: "There are few asset classes most people want to invest in outside a pension that are not already accessible within a pension - cash, equities and bonds."
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