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Free advice may not be enough

The UK retirement income market is in the midst of the most radical change in living memory, according to Skandia.

Significant reforms announced in the Budget and Queen’s Speech this year have substantial implications for how retirement income operates, with those approaching retirement enjoying unprecedented flexibility and freedom when it comes to deciding how to take their pension savings.

Free, impartial advice proposed by the Government to help enable those nearing retirement to understand the options available to them and make the most of their pension savings should be seen only as a stepping stone to full advice, the firm has suggested.

Skandia has warned that the decision is not a simple one and that there are many factors when it comes to selecting which option is best for a given individual.

Adrian Walker, retirement planning manager at Skandia, stated that the key to advice was consistency, explaining that it would be counter-productive if an individual with five pension schemes was given five different pieces of advice when it came to their optimal course of action.

In Walker’s view, this also means that the advice should not be offered by providers, as a single individual could end up with diametrically opposed sets of guidance, which would clearly be of little use when trying to decide which option to choose.

He suggested that a report (to an industry standard) into the individual’s pension affairs should be completed, and that they should be informed of how to arrange a meeting with an appropriate financial adviser.

Walker warned that making an error accumulating pension savings could be corrected by delaying retirement, working for longer or saving more, but that making an error later on (the so-called decumulation phase) could lead to money running out and be far harder to correct.

He concluded that the best way to avoid this difficult situation was to seek full, professional financial advice prior to retirement, and that Government advice should be seen only as a stepping stone to this stage.

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