According to research by the Pensions Policy Institute, more than a quarter (28%) of retirees face decisions that could see them outlive their pension pot. This worrying news highlights that more needs to be done to raise awareness of the importance of appropriate retirement planning.
The Evolving Retirement Outcomes report, which was sponsored by Legal & General, found that uncertainty about how long people can expect to live in retirement poses a significant challenge to retirees trying to make their savings last throughout later life.
Those with no defined benefit pension (typically a workplace pension), could see their retirement finances vary by up to 70%, depending on the decisions they make about their private pensions. What’s more, individuals who withdraw between 3.5% and 10% per year, could increase the time they spend in retirement, after having depleted their pension pot, by up to 15 years.
Commenting on the report, Emma Byron, managing director for individual annuities at Legal & General, said: “Pension reforms have given many of us the flexibility we want for retirement, but it also means that we now have to make our own decisions about how we access our pension pots. As this research shows, that could lead to a retirement that we didn’t anticipate, with many of us potentially outliving the money we’ve saved for later life. I believe that these findings pinpoint the importance of taking advice when it comes to planning retirement, whether it’s to understand the options like annuities and drawdown or to get a better understanding of how the choices we make might affect our experience of later life.”
“Part of the responsibility lies with the industry. We need to do more to raise awareness and champion the role of advice – modern retirement planning needs to reflect the changing nature of today’s retirement. However, providers must also engage customers in the lead up to retirement, without the jargon. To engage customers in planning later life, we need to talk to them about their needs and the solutions rather than products, and we need to use plain, clear language to make these options much easier to understand.”
The latest research highlights, not only the value of professional pension support but also the need to ensure that such financial advice is not a ‘once and done’ event. Indeed, retirees need to regularly revisit their retirement plans to make sure they are meeting any changing needs.
However, adding to the discussion Lauren Wilkinson, a policy researcher at the PPI, believes that educating people earlier in life is equally important. She said: “Product innovation may help people to achieve retirement outcomes that better suit their needs and preferences, but it may not be the best or only way to help. If people are engaged and informed, they are able to achieve positive outcomes using the range of products already available to them. With that in mind, policies aimed at increasing engagement before and at retirement are an important aspect of any strategy to improve outcomes.”
