PPI research paints bleak picture for future retirees

Future retirees can expect to live longer, but retire with more debt, face higher living costs and be more dependent on defined contribution savings, according to new research.

The bleak picture for future retirees was revealed in research published by the Pensions Policy Institute in association with Columbia Threadneedle. It also found that some future retirees will need to provide ongoing support to both older and younger family members, but at the same time, they expect to travel more than their parents’ generation.

The 2018 DC Future Book, a report on UK defined contribution, found that these challenges increase the complexity of the decisions people need to make at the point of retirement and throw up the question of how to make the most of their savings after they have stopped working. Columbia Threadneedle believes that a rethink of investment solutions for the decumulation phase is therefore needed.

It believes that an auto-enrolled default drawdown investment solution, underpinned by a well-diversified and dynamically managed multi-asset solution, can deliver robust risk-adjusted returns while at the same time protecting savings against market turbulence, investment sequencing risk and inflation.

Columbia Threadneedle Investments chief executive EMEA, Michelle Scrimgeour, noted that around nine million people in the UK will turn 55 in the next decade.

“For many, choosing an investment strategy and a sustainable income withdrawal rate will provide overwhelming, let alone taking a view on life expectancy and on how to protect their nest egg. Yet the pace of policy change, uncertainty about how the market will develop and the fact that most DC pension pots are still relatively small, are all creating barriers to innovation in the retirement space post freedom and choice," she said.

“We can’t afford to wait. Auto-enrolment for working people has been heralded as a success so far. We believe the same principles should apply to those at the point of retirement. For most people, a well thought-out and relatively inexpensive default drawdown fund with a preset investment strategy, flexible withdrawal rate and an opt-out option, increases the likelihood of achieving a level of income that not only sees them comfortably through retirement, but also meets their changing spending and therefore income needs.”

Pensions Policy Institute head of policy research Daniela Silcock said: “Increased freedom in accessing DC savings may help people to meet varying consumption needs during retirement, however they may struggle to know how to meet these increasingly complex needs. Some might benefit from using currently available secure products, such as annuities, advice and support. Others may benefit from pre-designed retirement pathways and other forms of help.”

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