Pension reforms: Two thirds of over-55s still confused, says Prudential

Two years after the Government's sweeping changes to pension freedom rules, the majority of retirement savers say they still aren't clear on what the changes mean for them.

Two thirds (67%) of over-55s - the age at which people can start to take advantage of the reforms - told life insurance specialists Prudential (SES: K6S.SI - news) they are confused by the system.

More than three quarters (77%) said they wanted to see a halt on any further alterations to pension rules going forward.

The government under David Cameron and George Osborne removed limits on buying and selling pension annuities as part of the spring budget in 2015, allowing people to cash in their pension pots for a lump sum rather than receive regular payments during retirement.

But Prudential's report suggests the changes have led to increased confusion, particularly around the issue of tax bills.

It had been expected that the changes would mean a total of £900m being paid to HMRC between April 2015 and the end of 2016, but in fact this figure has ballooned to an expected £2.6bn.

Vince Smith-Hughes, retirement income expert at Prudential, said: "Nearly 550,000 people have accessed more than £9.2 billion in funds since the launch of pension freedoms, demonstrating that there is popular demand for the increased flexibility brought about by the reforms.

"However, two years on from the introduction of the new rules there is also widespread confusion, with two out of three over-55s admitting they don't fully understand the reforms.

"That underlines the importance of advice and guidance in ensuring that the pension freedoms are a long-term success and it is encouraging that many savers recognise how advice can help them to make the most of their retirement pot."

The challenges around planning for retirement have also been served a blow thanks to the volatility surrounding Brexit.

Research by accountancy firm PwC has shown that the overall UK pension deficit has fallen by £20bn over the last month, despite relatively small market changes.

Steven Dicker, PwC's chief actuary, said: "Now (Frankfurt: 11N.F - news) the Brexit process has officially started, pension schemes face two years of uncertainty and potentially volatile deficits.

"This only adds to the challenge of long-term planning, especially when using a market 'snapshot' approach for actuarial valuations."