Two-thirds of over-50s have no firm plans for retirement finances

Prospective retirees over 50 are facing a “ticking time bomb” in retirement, with 66 per cent having made either no firm plans or no plans at all for their retirement finances, according to industry research.

The research, from Legal & General Investment Management (LGIM) and NMG Consulting (NMG), also found that 58 per cent of those who have already retired have either no firm plans or no plans at all for their retirement finances.

It warned that this has already translated into “considerable concern”, with 57 per cent of savers and a third of retirees fearful about their financial situation in retirement.

The pandemic has seemingly worsened concerns, and is the top financial worry for both pre- and post-retirement savers, with 57 per cent and 41 per cent of each subset expressing concerns respectively.

The research also found a lack of pension knowledge, with more than a third (35 per cent) of prospective drawdown users admitting that they know nothing about the funds they are invested in, whilst a further third were unsure.

Despite this, it found that the 25 per cent tax-free lump sum remains the most well-known and appealing feature of DC pensions, with 42 per cent of existing drawdown users already accessing their pot to take advantage of this.

Furthermore, 39 per cent of those who have not yet retired expect to withdraw their tax-free cash and leave the rest of their pot invested.

Considering this, the firms emphasised that ensuring this benefit continues will be “crucial” for future retirees, stating that for “squeezed savers” in particular, phasing these withdrawals could ensure they don’t take out too much too soon.

They also argued that defaults need to be suitable and flexible for members’ needs, after the research revealed that a low risk tolerance and reluctance to engage had prompted 56 per cent of those who had used a default fund during the accumulation journey to stay in the same product during decumulation.

Commenting on the findings, NMG partner, Jane Craig, stated: “Our research highlights that a lifetime of low engagement with pensions hits hard at the time when pensions really matter – at the point of making retirement income decisions.

“Consumers lack knowledge and show over-stated confidence in their abilities to make good decisions and this is likely to have consequences on their outcomes in retirement for many years.”

Indeed, despite the lack of knowledge, the survey found that almost half (41 per cent) of prospective and 35 per cent of existing users of drawdown were put off by the idea of having to pay a fee, with a further one in five (20 per cent) stating that they mistrust advisers.

Automated online guidance tools have also faced scepticism, as four in five existing drawdown users are cynical of the objectivity of pension provider online calculator tools.

This is despite provider websites being the most used information source for both prospective and existing drawdown users, being used by 53 and 34 per cent of each subset.

LGIM head of DC, Emma Douglas, added: “Pension freedoms are already approaching their five-year anniversary, but the long-term consequences are just starting to come through.

“As DC pension pots grow, the decisions made by individuals as they near their retirement could have significant consequences for their finances and standard of living.

“Increasingly a ‘good member outcome’ is not only about helping members to build up as much as possible in their pot in the accumulation phase, but also about giving them the right options and help when it comes to spending this money.

“The FCA Investment Pathways and the PLSA’s work on decumulation are both steps in the right direction and we’ll see more developments along these lines as more members approach retirement relying increasingly on their DC pension to provide them with the income they need.”

Following the research, LGIM has developed two retirement journeys for its non-advised, own trust and sole governance master trust members.

Both pathways will give members the ability to choose and switch across four different options, whilst one journey will also feature an additional emphasis on ESG factors.

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