Almost a decade after the introduction of Pensions Freedoms1, new research has revealed that retirees still aren’t considering the impact that inflation has on their pension savings.
Leading workplace pension provider People’s Partnership2 and asset manager State Street Global Advisors3 have today release early findings of New Choices, Big Decisions study, The research reveals that despite having experienced the pressures of rising cost of living, people who retired years ago still don’t factor in inflation when accessing their defined contribution pensions, meaning their savings might not go as far they had anticipated.
The latest instalment of the longitudinal study, which has followed the journey of a group of older savers up to and into their retirement since 2015, recommends that stress testing planning tools offered by financial service providers should provide a greater focus on inflation protection. It also says that pension providers should look to strengthen the information they provide on inflation in their customer information and education resources.
The report, which is due to be published in full early next year, highlights concern about the lack of attention given to the 1.1 million4 pension pots already in drawdown. It highlights that certain savers may receive inadequate communication about whether their previously made investment choices are still appropriate today, taking into account changing economic conditions.
The publication of the report coincides with the launch by People’s Partnership, which provides The People’s Pension to 6.5 million savers of a new online retirement planner5 which will enable its members to work out how much money they may need and could have in future.
Phil Brown, director of policy at People’s Partnership, said: “This unique study shows that people don’t necessarily make the right choice and, without support, they tend to develop an inflation “blind spot” in their retirement planning. We mustn’t forget that the recently retired vividly remember interest rates at 15% and above in the 1970s and early ’80s, yet many still don’t factor in inflation when planning their finances. This vital research underlines the need for savers to have access to retirement planning tools and products which factor in inflation and highlight the risks that poses to savings. There is a real danger that some retirees will have less in their pockets over the longer term than they had first anticipated,
“These findings are further evidence that the average saver, especially those in their sixties and seventies, require more support when it comes to accessing their retirement pots, especially those who entered into drawdown before the economy experienced its current challenges.”
Alistair Byrne, head of retirement strategy at State Street, added:
“Our research underlines the challenges individuals face when making decisions about how to access their pension pots. It’s clear they need more support from the industry, and access to well-designed solutions that deliver a balance of flexibility in early retirement and life-long income in later life.”
Retired London cab driver Laurence Collier, 74, from North London is one of the 50 savers to have taken part in New Choices, Big Decisions. Although he has four pensions and describes himself as comfortable in retirement, he admits he regrets not seeking professional advice at the time.
He says: “Probably one of the biggest mistakes I made was not building in protections against inflation in when I decided how to take most of my pensions – I only have one where I haven’t been affected by inflation. I didn’t think it through, and I wish I had taken proper advice as I didn’t go to a financial adviser.
“Although I’m in a good financial position, it would have been nice to have been better protected against inflation – that would’ve been the cherry on the cake.”
Note to editor
- Pension Freedom and Choice were introduced in 2015, click link here
- People’s Partnership provides The People’s Pension, the largest independent master trust in the UK, serving more than six million pension savers across the UK and manages more than £22bn in assets. As a business without shareholders, it reinvests its profits with the aim to help customers and achieve better financial outcomes for everyone.
- For four decades, State Street Global Advisors has served the world’s governments, institutions and financial advisors. With a rigorous, risk-aware approach built on research, analysis and market-tested experience, we build from a breadth of index and active strategies to create cost-effective solutions. And, as pioneers in index, ETF, and ESG investing, we are always inventing new ways to invest. As a result, we have become the world’s fourth-largest asset manager* with US $3.69 trillion† under our care.
*Pensions & Investments Research Center, as of 12/31/22.†This figure is presented as of September 30, 2023 and includes approximately $58.13 billion USD of assets with respect to SPDR products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated. Please note all AUM is unaudited.
4. Ignition House analysis of the FCA Retirement Income Market data https://www.fca.org.uk/data/retirement-income-market-data-2020-21#:~:text=fully%20encashed%20plans.-,Key%20findings,to%2060%2C383%20in%202020%2F21