The ABI says this is putting “a lifetime of saving at risk” and it is publishing new proposals today for its members on how to communicate better with customers at key life stages about the risks of not seeking advice.
Analysis by the body shows that one-third of people are accessing pension cash without taking financial advice despite the fact the average pension pot has reached a new high of £120,000.
The analysis found that more than 62,000 people accessed some of their pension for the first time during a six-month period last year but 34% did not take any form of financial advice.
The analysis is based on the ABI’s 6-monthly retirement income data collection from its members. The figures showed that between April and September 2018 62,376 customers entered drawdown for the first time, of which 34% received no advice. Some 11% of these did receive guidance from PensionWise, but no formal advice was sought at any stage of their life.
The main reason for not seeking advice may be the prohibitive cost of seeing a professional advice, the ABI said. This may explain why 21,000 people accessed a record-average pot size of £120,000 without ever having spoken to a financial adviser.
The ABI says by thousands of retirees run the risk of making “dangerous decisions” about what to do with the large sums of cash they suddenly have access to, which could eventually lead to them running out of money too early and having to fall back on family members or the state just to cover expenses and the cost of living.
ABI director of Long-Terms Savings Policy, Yvonne Braun, said: “Pension freedoms gave consumers many more options and flexibility in their retirement but with greater choice comes greater risks.
“To see levels of advice hitting new lows is disturbing and risks leaving thousands of elderly consumers facing poverty later on in their retirement. New problems require new solutions, and empowering consumers to make the right decisions for them is our priority at the ABI which is why we are publishing new proposals on how to communicate with customers today.”
While the average drawdown pot size of £120,000 is the highest on record, the ABI also found that the proportion of customers reaching retirement with more than £250,000 also doubled in the space of just two years to 11%.
The ABI is publishing two guidance documents at its annual Long-Term Savings Conference today.
The first, ‘Tailored Risk Warnings’, focuses on raising awareness of the risks that consumers face at different ages as they approach retirement. It recommends that customers receive three different forms of risk warnings at ages 50, then 55 to 70, and then at age 75.
The different warnings cover scams and contributions for the younger groups, and then tax, life expectancy and power of attorney risks for the older groups – for example.
The second document, ‘Communications Through the Lifecourse’ focuses on the opportunities during different stages of the customer’s life. It highlights the need to speak to new 18-25 year olds differently to other age groups, in the same way that adults in their 50s will need to receive different messages as they draw closer to their retirement.