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Pension savers need more support from the industry before making big decisions

Older retirement savers need far more support from the pensions industry before making the “huge” decision about how to best use their savings pots, according to B&CE1, provider of The People’s Pension.

Speaking at the PLSA Annual Conference in Liverpool, Phil Brown, Director of Policy at B&CE, which supplies pensions to nearly six million people or 1 in 5 UK workers, said that current decumulation options favoured by pension companies meant that millions of ordinary workers were faced with complex decisions that many aren’t qualified to make.

He said that the unique longitudinal study, ‘New Choices, Big Decisions’2, that The People’s Pension first commissioned following the introduction of Pensions Freedoms in 20153, should be seen by the industry as evidence from which it can offer consumers alternative retirement solutions, such as pseudo-default retirement products.

He also challenged the industry to do more to help consumers not only make decisions on how to make their Defined Contribution savings last throughout retirement, but also to provide clearer details, so they are better informed before transferring their pension pots.

Mr Brown says: “After buying a home, how to use their defined contribution pension savings is the biggest decision many people will make – it’s huge. Through automatic enrolment we hold people’s hands and put them in pensions when they join companies, but then assume that they will be super engaged and make complex retirement choices that will impact their retirement for 30 or more years.

“The reality is that to make informed retirement choices, consumers need to be part financial adviser, part fund manager, part economist, part tax accountant, part doctor and maybe part futurologist. When somebody buys a house, we don’t expect them to do the property conveyancing, yet when it comes to what to do with their pension pots, we expect them to navigate an even more complicated area, despite not being equipped with the rights skills.

“Our ‘New Choices, Big Decisions’ research showed that many savers run out of money in retirement because they don’t understand either their own longevity or the impact inflation has on those savings.”   

He has also called for pensions dashboards, which are due to be introduced in 2023, to display a scheme’s value for money credentials at the earliest opportunity.

He said: “The pensions transfers market is creating member detriment as members are, in some cases, using the wrong sort of information to make transfer decisions. It’s crucial that savers are aware of the impact of charges when brand or other factors are the main driver behind a transfer. We need to change the discussion to one about ‘Value for Money’ and dashboards must display this information as soon as possible to prevent poor decision making that is detrimental to member’s retirement outcomes.”


Impact of part-time work on women’s pensions – study

More must be done to ensure women choosing between full and part-time work are made aware of the potential impact on their pensions

Part-time female workers in their forties and fifties could benefit from information from pension companies explaining what the impact of working either a day or two extra a week would have on their pension savings, according to latest research.

Findings contained within the New Choices, Big Decisions study1, which was commissioned by leading workplace pension scheme The People’s Pension2 and asset manager State Street Global Advisors3, provides further evidence of the impact of the gender pensions gap4. Responsibilities, such as looking after children, meant some of the women interviewed for the study had reduced their working hours early in their careers, and retained this work pattern after their circumstances changed enough for them to consider increasing their hours.  Of those interviewed, women were more likely than men to be in part-time work both at retirement and in the lead up to it.

The report recommends that the workplace pension industry should explore the possibility of getting information to women who work part-time, in their mid-40s and beyond, setting out the ramifications of not having up to an extra two days a week of work on the size of their pension pot.

Calculations by The People’s Pension reveal that a woman who chose to return to full-time work aged 42 after 14 years of working part-time could be as much as £1,224 a year better off in retirement than a woman who stopped working at 28 and continued part-time hours throughout her career6. The new state pension will provide £9,110 a year in retirement.

Phil Brown, the director of policy and external affairs at B&CE, the provider of The People’s Pension, said: “This latest research is further evidence of just how stark the gender pensions gap is. The New Choices, Big Decisions study has given us genuine insight about how people save and plan for their retirement and there are sobering examples of women who now regret that they didn’t fully consider what impact that sustained periods of working part-time would have on them in retirement.

“We in the pensions industry could look to do more to see how women might receive information about how to increase what they save.”

“But it’s important to recognise that the gender pensions gap cannot be bridged by individuals acting alone, even if they get more information from the pensions industry, as it requires the Government to do more to enable women to return to their roles or work more hours once they have children. One of the main ways of doing this would be the provision of better, more affordable childcare.”


New Choices, Big Decisions: Pensions Personalities Revisited

Following on from the most recent study in the series which explores savers’ retirement planning and spending habits after the introduction of pensions freedoms in 2015, this follow-on report looks at the seven personalities in more detail.

The ‘New Choices, Big Decisions’ series explores the evolution of consumer decision making and behaviours under Pension Freedoms – as well as its impact on retirement planning and spending habits. In this latest report, we assess how our brave pension pioneers have been getting on in the five years since new freedoms changed the way people think about their pension money.

The respondents in our research had their own unique priorities, beliefs and preferences, but common themes and traits were also evident across these groups. We revisited seven pension personalities, from the Procrastinating Petes and Paulas, who were overwhelmed by the task at hand, to the I can Do Better Colins and Clares, who’d lost all faith in pensions and would rather have the money in their control.

Five years on, they’re no better informed about the risks they face if they don’t want to buy an annuity. They’ve not been using the time to build the skills needed to make good decisions, nor are they seeking appropriate support. There’s a range of behavioural biases at play which have resulted in them sleepwalking into full retirement with very limited financial plans.

Download our ‘New Choices, Big Decisions: Pension Personalities Revisited’ report

Retirement poll reveals desire for trusted guidance

Survey reveals that pension savers want trusted guidance to help them secure a good retirement

Three quarters (75 per cent) of UK adults who have a pension say that they would consider taking guidance about how to make their savings last throughout retirement from a pension provider with a legal duty to put their interests first, a new survey has revealed.

The YouGov1 survey was commissioned by leading workplace pension provider The People’s Pension2, following the publication of the ground-breaking New Choices Big Decisions3 report earlier this year, which, based on extensive interviews, found that many older savers are sleepwalking into retirement and run the risk of running out of pension savings years before they die. This study was first launched following the introduction of pension freedoms4, which has meant that individuals either must make a choice between a variety of financial products to finance their retirement or withdraw their pension savings.

The survey presented respondents with a selection of options for spending their pension savings during retirement. It found that nearly four in ten (37 per cent) of those who are saving for retirement would be prepared to be guided towards taking a pension that was split between giving them a guaranteed regular income (an annuity) and the rest as a flexible income pot (drawdown) after taking the tax-free lump sum up-front. A further 35 per cent chose a guaranteed regular income (an annuity) only option after taking the tax-free lump sum.

The survey also highlighted how unprepared for retirement planning many people are:

  • More than a third (35 per cent) don’t know when they will retire. For those aged 55 and over, more than a fifth (22 per cent) are uncertain of when they will stop working.
  • Just over one in ten (12 per cent) knew or guessed the weekly value of the UK State Pension5. This knowledge is as low as three per cent for 18-24 year olds and is only as high as 25 per cent for those aged 55 and over. 
  • Just under half (48 per cent) said they don’t know how long their retirement savings will need to last them, including 45 per cent of those aged 55 and above.
  • Nearly three in ten (28 per cent) of everyone surveyed, say they have no idea what to do with the savings they have built up for their retirement. 

Phil Brown, the director of policy and external affairs at B&CE, the provider of The People’s Pension, said: “This latest research  provides further evidence that pension savers are crying out for guidance about how they should approach retirement. It’s clear there is an opportunity for the industry and master trusts are well placed to meet it.

“Master trusts have an opportunity to develop the retirement products which will meet the needs of many for security as well as providing flexibility. This means a coming of age for well-governed auto enrolment schemes – as they move from being saving vehicles for employees to also providing their pensions in retirement.”


Latest New Choices Big Decisions report published

Pensions ticking timebomb: study reveals savers sleepwalking into retirement six years on from Pensions Freedoms

Nearly six years on from the introduction of Pension Freedoms1, new research has shown that older savers are sleepwalking into retirement and risk running out of all their Defined Contribution pension savings with a third of their retirement still ahead, meaning they could  spend their final years reliant on the state pension.

Leading workplace pension provider The People’s Pension2 and asset manager State Street Global Advisors3 have today published the latest findings of the New Choices, Big Decisions4 study, which examines both retirement planning and spending habits following the introduction of Pension Freedoms in 2015. The in-depth research by the consultancy Ignition House, reveals that people facing retirement want their pension provider to give them a safe guided path into retirement, rather than the complex array of decisions with which they are now faced.

The new research centres around interviews with 50 savers, including 30 people who took part in the first study in 2015, who are either approaching retirement or have already finished their careers. The study shows that, because pensions freedoms have compelled people to put together their own retirement solutions, 74 per cent5 of those interviewed are spending their pension savings at a speed, which at best, means they will run out of money in their mid to early 80s, even though many will live into their 90s.6

The research reveals how policy makers and the industry have built a system that could only work effectively based on unrealistic assumptions as to how people behave. The work by Ignition House maps out the massive discrepancy between expert assumptions and actual behaviour.7

 Key findings include:

  • Savers are scared of planning for the future as they don’t want to discover the ‘truth’
  • They underestimate the financial risk of growing old and don’t understand how inflation can impact their savings
  • The typical saver follows the path of the least resistance – they won’t leave a product or change a drawdown withdrawal rate once they have signed up

Phil Brown, Director of Policy and External Affairs at B&CE, the provider of the People’s Pension said:

“This research shows why policy makers must require pension schemes to guide members to products which match retirement risks, including living longer than they had planned for, and which will ensure that DC pension savers have an income throughout their retirement. There is evidence that a significant number of people are sleepwalking into retirement and will have a worse quality of life in later years than could have been the case if they had been guided. People would be dismayed to arrive at a car dealer’s forecourt to buy a car, be presented with a selection of parts and told to a pick a selection and build their own vehicle, so why do we expect pension customers to do exactly this?

“This report fills a big gap in our understanding of how pension freedoms are working in practice.”

Alistair Byrne, of State Street Global Advisors said: “This research shows clearly the very many challenges that older savers face when making a decision about their pensions. People struggle to see beyond the near-term future and cannot always access the type of advice and support they would like. As an industry we need to continue simplifying what we offer, providing guidance and support, and easy paths to follow, whether we call them ‘defaults’ or not.”


New Choices, Big Decisions – 5 Years On

Five years on from the introduction of Pension Freedoms, new research by The People’s Pension and State Street Global Advisors has shown that mature savers are sleepwalking into retirement. They risk running out of Defined Contribution pension savings and, with a third of their retirement still to come, could spend their later years reliant on the state pension.

In-depth research by consultancy Ignition House explores both retirement planning and spending habits following the introduction of freedoms in 2015. The study reveals that people nearing retirement want their pension provider to supply a safe, guided path into retirement – rather than the complex decisions with which they’re now faced.

The new research centres around interviews with 50 savers and shows how policymakers, and the industry as a whole, have built a system that relies on unrealistic assumptions around how people behave to work effectively.

Key findings include:

  • Savers are scared of planning for the future as they don’t want to discover the ‘truth’
  • Savers also underestimate the financial risk of growing old and don’t understand how inflation can impact their savings
  • The typical saver follows the path of the least resistance – they won’t leave a product or change a drawdown withdrawal rate once they have signed up

Download our ‘New Choices, Big Decisions: 5 Years On’ report 2021

Provider’s view on Government response to Freedoms report

The People’s Pension comments on Government response to the Work and Pensions Select Committee Report on Pension Freedoms

Commenting on the government’s response to the Work and Pension Select Committee’s Pension Freedoms report, Dave Brown, director of strategy and innovation at The People’s Pension, said:

“While we recognise the diverse needs of people when they reach retirement and back proposals to better help people towards information and guidance, we must accept that there will still be a large number of retirees who aren’t engaged. For these people, there is a clear need for a guided pathway in retirement, and we, like many master trusts, are currently working on the details of product design to help our members live comfortably once they retire.”


Part 3 of New Choices, Big Decisions

As the 3rd report in the ‘New Choices, Big Decisions’ series, this study looks at a group of savers who accessed or considered accessing their pension savings in late 2015 and early 2016, following up a year later to see how their circumstances and perspectives have changed.

We contacted participants from the initial ‘New Choices, Big Decisions’ study to explore how their lives have changed over the past 12 months and to understand, with the benefit of hindsight, how they now feel about the choices they’ve made.

The research found that savers who accessed cash from their pension funds using the new pension freedoms don’t regret their decisions, believing the happiness generated from spending the money – on holidays, cars, home improvements and family – far outweighs any benefit from receiving it as a ‘paltry’ income in the future.

It also shows that even where savers are engaged with their pension, decision making can be challenging. Multiple sources of information on what to do can add confusion rather than making the picture clearer – and can lead to some savers just deciding to take action without necessarily thinking about the long term.

Download our ‘One year on: part 3 of New Choices, Big Decisions’ report

Part 2 of New Choices, Big Decisions

Following on from our study of decision making at retirement, this report, created with State Street Global Advisors, further analyses the findings of the initial research, looking specifically at how your personality could affect your income in retirement.

It identifies 7 distinct personality types among people who are accessing their pension pots under the new freedoms, and finds they are at unacceptably high risk of poor long-term outcomes.

The report calls for the industry to consider how best to support these types of pension savers in their decision making – to try to avoid people running out of money in retirement.

The idea is that, by understanding the lens through which retirement savers see the world, their goals and pain points, we can start to move away from a one-size-fits-all approach to truly creating personalised solutions. This would to help people make the most of their money under the new pension freedoms.

Download our ‘Part 2 of New Choices, Big Decisions’ report

Part 1 of New Choices, Big Decisions

Following the introduction of the new pension freedoms, we wanted to explore how people make their retirement decisions.

Alongside State Street Global Advisors and Ignition House we undertook research which tracked each step of the decision-making process across a 6-month period. The research looked at:

  • how people made their retirement decisions
  • the emotions they experienced
  • the barriers they had to overcome.

The research shows that savers thought the new pension freedoms meant they had to take their cash now – but it might not be the right choice for them.

It indicates that freedom and choice is welcomed but overwhelming for savers, and it reveals the challenges that need addressing, highlighting 10 key questions that savers should ask themselves to help them make the most of their retirement savings.

Download our ‘Part 1 of New Choices, Big Decisions’ report.