Time for us to get a grip on later life!

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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.

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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.

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The trend slide is now two years out of date but I doubt much is changing.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

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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

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And the awful truth is that most of them aren’t thinking about retirement in a financially meaningful way

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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.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, age wage, pensions and tagged , , , , . Bookmark the permalink.

1 Response to Time for us to get a grip on later life!

  1. Brian G says:

    I hope you are able to do something positive and helpful Henry. There is a fundamental problem though. A sizeable minority of people in the UK are too poor to plan effectively for a prosperous retirement, so even with greater engagement and understanding, a lot of newly enlightened people who engage with their pensions will not be in a position financially to do very much at all to improve their after working life provisions. Whilst we live in a country where there is such massive inequality, and where those in power influence others to believe that everyone should look after themselves (a decent enough aspiration but totally impossible for many), we will continue to have many people living in relative poverty both during and after their working lives. I totally agree with your views about the needs to engage people, but people without any real chance of improving things tend not to be interested. Of course, there is a sizeable minority of people who CAN afford to provide for themselves after they finish working, but who are currently not aware of the need or not interested enough to do so. Hopefully you and others can succeed in helping such people make choices which help them have a more prosperous retirement. But the true problem is the massively unequal dispersal of wealth in the UK, and the unwillingness of the wealthy to help those who are less fortunate.

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