The extent to which individuals will be able to achieve positive retirement outcomes under the pension freedoms depends on the success of the pensions industry and policy makers being able to create innovative product solutions, according to the Pensions Policy Institute.

Its latest report, The evolving retirement landscape, the PPI also stated that people’s chances of a positive retirement outcome will also depend on financial education, advice and guidance. The report explored how the introduction of the pension freedoms and auto-enrolement are changing the retirement landscape.

The PPI warned that groups that are more at risk of making sub-optimal decisions, which could have a significant negative impact on their retirement outcomes, are those with moderate to high levels of defined contribution savings and no or low defined benefit entitlement. Around a quarter of individuals currently aged between 50 and state pension age have moderate to high levels of DC savings (more than £24,400) and either no DB entitlement or entitlement below £7,000 per year. The PPI stated that although this group is relatively small at the moment, it is likely to grow steadily for future cohorts.

In addition, the report also noted that changing combinations of savings and wealth will affect the way that individuals make decisions about how to fund retirement People in the future, who will reach retirement with different combinations of saving and wealth to today’s retirees, will face more complex decisions about how to access their retirement savings and how to convert them into an income that will support them throughout their retirement, it noted.

Commenting, PPI policy researcher Lauren Wilkinson said: “Freedom and choice has opened up new ways for people to access pension savings. However, it also opens up new challenges and risks. Future retirees will be reaching retirement with more different combinations of saving which will impact the decisions they make and the retirement outcomes they are able to achieve.

“Over time there will be an increase in the number of people reaching retirement at risk of making sub-optimal decisions that could have a significant negative impact on their retirement outcomes because of the complexity of savings portfolios, the risk attached to certain types of savings (such as Defined Contribution savings) and low levels of understanding and engagement. Many people have not given much consideration to how they will access their pension savings in order to fund retirement, even among those who intend to retire within the next few years.”

The PPI will also be publishing a second report in the series, which will focus on the potential outcomes that may be achieved through a range of retirement income decisions for individuals with different combinations of savings and assets. It will also explore the way that current products, advice and guidance meet the needs of people facing retirement decisions in terms of whose needs are met and whose are not, and the changes that may need to occur within the industry and wider pensions landscape in order to ensure that retirement outcomes are positive for as many people as possible.

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