Quarter of people face pension decisions that could vary retirement income by 70%

A quarter of savers reaching retirement in the next ten to fifteen years, who have moderate to high levels of DC savings and low or no DB entitlements, will face decisions that could see their private pension income vary by more than 70 per cent.

The warning has come from The Pensions Policy Institute (PPI) in a new report called Evolving retirement outcomes. The PPI has also said that poor decisions could result in people living for many years without a private pension income. Assuming a pension withdrawal rate of 10 per cent, it has estimated that a retiree could live an average further eight years and nine months after they have run down their pension savings.

It has called for extra support for savers to ensure that they make decisions which will deliver positive outcomes in retirement.

The report, sponsored by a consortium including AXA Investment Managers, ABI, DWP, Legal & General, Nest, Prudential, TPR and Wealth at Work, explores the range of outcomes that people can achieve with existing products and the scope there may be for innovation to improve outcomes for retirees.

PPI policy researcher Lauren Wilkinson said the report had found that product innovation was not necessarily the solution when it came to providing better retirement outcomes. Instead, she argued that people needed to be more engaged and informed to make the best use of the products that were already available to them.

“With that in mind, policies aimed at increasing engagement before and at retirement are an important aspect of any strategy to improve outcomes,” she said.

“However, increasing engagement is something that will take time and there needs to be appropriate support for those who are reaching retirement now and in the next few years for whom engagement may be lower and pot sizes smaller.”

Wilkinson also said that guided retirement pathways may be a remedy for low levels of engagement or for those for whom high levels of engagement and financial capability are not practicable.

“A retirement landscape in which all are engaged and informed may be the ideal, but with many retirees inactive and less well-informed, defaults have the potential to provide improved outcomes for some people,” she added.

“There is a lack of consensus about whether defaults are necessary, what they might look like in practice, how many people would use them, and even the way in which they should be described.”

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