By: Andrew Tully, Pension Technical Director, MGM Advantage

The widespread pension changes introduced from April 2015 – giving the Chancellor’s revolutionary 2014 Budget – delighted many by giving people the ultimate flexibility in when and how to take their pension savings. But with greater choice comes greater risk.

And so it is pleasing that recent research by MGM suggests two-thirds of people aged 55 and over believe it should be compulsory to receive financial advice at retirement.

Many of the headlines over the last year have concentrated on the fantastic freedom and choice being introduced. And it’s obvious that has huge appeal. But this greater flexibility means people face a whole number of risks. Some people will inadvertently pay much higher levels of tax than they need to by withdrawing large amounts from their pension without tax planning. Others may plan carefully but underestimate how long they will live, leading to relative poverty in later life. The increasing incidence of scams is another significant risk. While keeping your pension pot invested may mean funds and income could unexpectedly fall.

This is why the Government has introducing a guidance service – Pension Wise – offering everyone approaching retirement help working out the options available as well as understanding the risks and the consequences of their actions. The Pension Wise guidance service is a good starting point and may be sufficient for some people. But it won’t tell people what to do. So there is a real risk that people may simply do it themselves. Or revert to the pension company they have built up their savings with, and therefore fail to shop around for the best solution.

Our research1 highlights a clear need for advice. Many need – and want – that degree of help. An expert to work out the best option, and then decide which provider offers the optimum solution which best fits their individual circumstances.

As well as the 65% who believe it should be compulsory to receive financial advice at retirement, only 11% said they were very comfortable managing their pension in retirement.

That paints a clear picture of an appetite among the over 55s for financial advice not only at the point of retiring but also during retirement. People are making difficult, life-changing decisions, made all the more complex by the new pension rules. Many appear to recognise that without financial advice they may fail to realise the full implications of their actions and make decisions that end up costing them dearly.

We need to make it simple for people to find a professional adviser. And continue to promote the benefits of getting financial advice. For example, it’s crucial there is a clear hand-off from the guidance service (and from pension providers) to regulated financial advice to help people take the next step. Helping people use professional advice is a key way to ensure we improve the outcomes for people at retirement and make sure the new rules benefit as many of them as possible.