Latest New Choices Big Decisions report published

Pensions ticking timebomb: study reveals savers sleepwalking into retirement six years on from Pensions Freedoms

Nearly six years on from the introduction of Pension Freedoms1, new research has shown that older savers are sleepwalking into retirement and risk running out of all their Defined Contribution pension savings with a third of their retirement still ahead, meaning they could  spend their final years reliant on the state pension.

Leading workplace pension provider The People’s Pension2 and asset manager State Street Global Advisors3 have today published the latest findings of the New Choices, Big Decisions4 study, which examines both retirement planning and spending habits following the introduction of Pension Freedoms in 2015. The in-depth research by the consultancy Ignition House, reveals that people facing retirement want their pension provider to give them a safe guided path into retirement, rather than the complex array of decisions with which they are now faced.

The new research centres around interviews with 50 savers, including 30 people who took part in the first study in 2015, who are either approaching retirement or have already finished their careers. The study shows that, because pensions freedoms have compelled people to put together their own retirement solutions, 74 per cent5 of those interviewed are spending their pension savings at a speed, which at best, means they will run out of money in their mid to early 80s, even though many will live into their 90s.6

The research reveals how policy makers and the industry have built a system that could only work effectively based on unrealistic assumptions as to how people behave. The work by Ignition House maps out the massive discrepancy between expert assumptions and actual behaviour.7

 Key findings include:

  • Savers are scared of planning for the future as they don’t want to discover the ‘truth’
  • They underestimate the financial risk of growing old and don’t understand how inflation can impact their savings
  • The typical saver follows the path of the least resistance – they won’t leave a product or change a drawdown withdrawal rate once they have signed up

Phil Brown, Director of Policy and External Affairs at B&CE, the provider of the People’s Pension said:

“This research shows why policy makers must require pension schemes to guide members to products which match retirement risks, including living longer than they had planned for, and which will ensure that DC pension savers have an income throughout their retirement. There is evidence that a significant number of people are sleepwalking into retirement and will have a worse quality of life in later years than could have been the case if they had been guided. People would be dismayed to arrive at a car dealer’s forecourt to buy a car, be presented with a selection of parts and told to a pick a selection and build their own vehicle, so why do we expect pension customers to do exactly this?

“This report fills a big gap in our understanding of how pension freedoms are working in practice.”

Alistair Byrne, of State Street Global Advisors said: “This research shows clearly the very many challenges that older savers face when making a decision about their pensions. People struggle to see beyond the near-term future and cannot always access the type of advice and support they would like. As an industry we need to continue simplifying what we offer, providing guidance and support, and easy paths to follow, whether we call them ‘defaults’ or not.”

ENDS

New Choices, Big Decisions – 5 Years On

Five years on from the introduction of Pension Freedoms, new research by The People’s Pension and State Street Global Advisors has shown that mature savers are sleepwalking into retirement. They risk running out of Defined Contribution pension savings and, with a third of their retirement still to come, could spend their later years reliant on the state pension.

In-depth research by consultancy Ignition House explores both retirement planning and spending habits following the introduction of freedoms in 2015. The study reveals that people nearing retirement want their pension provider to supply a safe, guided path into retirement – rather than the complex decisions with which they’re now faced.

The new research centres around interviews with 50 savers and shows how policymakers, and the industry as a whole, have built a system that relies on unrealistic assumptions around how people behave to work effectively.

Key findings include:

  • Savers are scared of planning for the future as they don’t want to discover the ‘truth’
  • Savers also underestimate the financial risk of growing old and don’t understand how inflation can impact their savings
  • The typical saver follows the path of the least resistance – they won’t leave a product or change a drawdown withdrawal rate once they have signed up

Download our ‘New Choices, Big Decisions: 5 Years On’ report

Provider’s view on Government response to Freedoms report

The People’s Pension comments on Government response to the Work and Pensions Select Committee Report on Pension Freedoms

Commenting on the government’s response to the Work and Pension Select Committee’s Pension Freedoms report, Dave Brown, director of strategy and innovation at The People’s Pension, said:

“While we recognise the diverse needs of people when they reach retirement and back proposals to better help people towards information and guidance, we must accept that there will still be a large number of retirees who aren’t engaged. For these people, there is a clear need for a guided pathway in retirement, and we, like many master trusts, are currently working on the details of product design to help our members live comfortably once they retire.”

ENDS

Part 3 of New Choices, Big Decisions

As the 3rd report in the ‘New Choices, Big Decisions’ series, this study looks at a group of savers who accessed or considered accessing their pension savings in late 2015 and early 2016, following up a year later to see how their circumstances and perspectives have changed.

We contacted participants from the initial ‘New Choices, Big Decisions’ study to explore how their lives have changed over the past 12 months and to understand, with the benefit of hindsight, how they now feel about the choices they’ve made.

The research found that savers who accessed cash from their pension funds using the new pension freedoms don’t regret their decisions, believing the happiness generated from spending the money – on holidays, cars, home improvements and family – far outweighs any benefit from receiving it as a ‘paltry’ income in the future.

It also shows that even where savers are engaged with their pension, decision making can be challenging. Multiple sources of information on what to do can add confusion rather than making the picture clearer – and can lead to some savers just deciding to take action without necessarily thinking about the long term.

Download our ‘One year on: part 3 of New Choices, Big Decisions’ report

Part 2 of New Choices, Big Decisions

Following on from our study of decision making at retirement, this report, created with State Street Global Advisors, further analyses the findings of the initial research, looking specifically at how your personality could affect your income in retirement.

It identifies 7 distinct personality types among people who are accessing their pension pots under the new freedoms, and finds they are at unacceptably high risk of poor long-term outcomes.

The report calls for the industry to consider how best to support these types of pension savers in their decision making – to try to avoid people running out of money in retirement.

The idea is that, by understanding the lens through which retirement savers see the world, their goals and pain points, we can start to move away from a one-size-fits-all approach to truly creating personalised solutions. This would to help people make the most of their money under the new pension freedoms.

Download our ‘Part 2 of New Choices, Big Decisions’ report

Part 1 of New Choices, Big Decisions

Following the introduction of the new pension freedoms, we wanted to explore how people make their retirement decisions.

Alongside State Street Global Advisors and Ignition House we undertook research which tracked each step of the decision-making process across a 6-month period. The research looked at:

  • how people made their retirement decisions
  • the emotions they experienced
  • the barriers they had to overcome.

The research shows that savers thought the new pension freedoms meant they had to take their cash now – but it might not be the right choice for them.

It indicates that freedom and choice is welcomed but overwhelming for savers, and it reveals the challenges that need addressing, highlighting 10 key questions that savers should ask themselves to help them make the most of their retirement savings.

Download our ‘Part 1 of New Choices, Big Decisions’ report.