People facing retirement 'more confident' thanks to pension freedoms

More than a third of people retiring this year say the new pension freedoms have boosted their confidence, according to research.

The findings from Prudential were released to mark the first anniversary of the reforms, which give people aged 55 and over more choice over what to do with their pension pot, rather than being required to take an annuity retirement income.

The changes to pension rules, which were introduced on April 6, 2015, have boosted the retirement confidence of 34% of this year's retirees, Prudential found.

When asked what the positive aspects of the rule changes are, more than two-fifths (44%) mentioned the greater degree of flexibility they now have over access to their pension savings, and 41% are happy that they can now take more responsibility for their retirement finances.

With this in mind, 31% said that they are now more likely to take professional financial advice.

More than one third (36%) of those with pensions planning to retire in 2016 plan to take some or all of their pension savings as a cash lump sum.

Of those who will take cash from their pension, more than four in 10 (43%) plan to take out more than their 25% tax-free amount, potentially exposing themselves to a tax bill. Generally, the first 25% of a retiree's pot can be taken tax-free and the remainder is subject to tax.

Separate research from Aegon among more than 3,800 people found the pension freedoms are also having a knock-on effect of encouraging the younger generations to save more into a pension.

Aegon found that 15% of the working population are saving more into their pension as a direct result of pension freedoms - equating to 6.2 million people across the UK contributing more to their pension than they were in April 2015.

Prudential also found evidence that many people are approaching the new freedoms with caution. Nearly three-fifths (59%) of people said the changes have not yet led them to alter their plans for taking an income from their pension savings, while nearly half (49%) said the pension freedoms have not had an impact on their attitude to retirement, as they are not sure the rule changes will last.

However, many people who said they have not changed their plans stand to benefit from a final salary pension, which guarantees people a set retirement income. Final salary pensions, which are not subject to the freedoms, are becoming more thin on the ground as firms have found them increasingly expensive to run as people live for longer.

The pension freedoms apply to defined contribution (DC) pensions, where how much money you end up with at retirement depends on factors such as the performance of investments.

Vince Smith-Hughes, a retirement income expert at Prudential, said: "We are in the midst of some of the biggest changes to pensions in a generation, so it is pleasing to see that people broadly welcome the new rules.

"It is also understandable that, in the face of such change, this year's retirees who have done most of their retirement planning under the old set of rules are cautious about making big changes to their plans."

More than 1,000 people planning to retire in 2016 took part in Prudential's research.