The FCA’s financial lives survey is now over two years old and due an update. This great piece of work was marshalled by Jo Hill who is now a Trustee at the Pensions Regulator. It is worth me reminding myself of its findings that speak for themselves.
The three key pages of the document are the block infographics printed here. They represent the scale of the problem facing Government in the wake of the Retail Distribution Review, people are simply not engaging with their retirement, have too little understanding of their pension and over a third don’t trust their providers.
It would seem that as we get more dependent on income from sources other than work , we get more conservative, preferring a wage for life solution to flexi-access drawdown.
Nearly a third of people cashing drawing down their pensions have done so without advice and over a half have been cashed out, the remainder are either rolling up or have been annuitised. Taking advice at retirement is a minority sport.
The trend slide is now two years out of date but I doubt much is changing. There are still a high number of individuals annuitising with their existing providers, though this number is falling as people become more familiar with pension freedoms (and hopefully use the open market more).
The distribution of decisions between types of drawdown conceals , what is subsequently becoming obvious, that most people crystallising their pension are doing so to strip out tax-free cash. There appears to be relatively little cashflow planning going on.
Indeed people seem to have difficulty visualising their future financial needs
The lack of coherence between responses suggests (to me) confusion. Though “figure 16” suggests a relatively small number of don’t knows. The default position seems to be “stay the same” but since as many think their financial needs will increase as decrease, it is hard to see how a “one size fits all” approach to retirement income – would succeed.
The survey suggests a great deal of fluidity in thinking, people become more conservative as they grow older, they take different decisions about their money and they think about their retirement income needs in different ways.
This suggests the need for increased support at retirement, which is what Pensions Wise is there for, but Pensions Wise is only dealing with around 10% of those who are taking retirement decisions.
For the most part, the survey suggests that people are all over the place with their decision making, which may please those who do not believe in social cohesion. But this is not how we make policy in this country. Generally we try to legislate around evidence rather than speculation.
I fear when I re-read this report that Government policy with regards in retirement decision making is being driven by the actions of those retiring today. But those actions are not consistent nor (to a large degree) intelligible. Many people appear to be self-harming by taking short-term advantage of long-term savings. Others are taking no action where action may be needed to be taken. Despite needing guidance and advice, those taking either are very low and people seem to have little consistency in their understanding of what their financial futures will bring.
Above all else, these numbers, so well put together, tell us that people are simply not engaging with their pensions
And the awful truth is that most of them aren’t thinking about retirement in a financially meaningful way
I am not repeating these statistics because I am shocked, I am not. I actually see this as a commercial opportunity for my business.
Because people do not like to have no pension and when put on the spot, will express concern about their later life finances.
If we cannot do something about these numbers in an age when almost everyone has access to self-help through their various digital interfaces, then we aren’t very good.
We believe that digital technology can help solve this problem and that by getting a grip on their phones, people can find the information they need to plan ahead in a meaningful way.