Don't 'sleepwalk' into retirement

18 Jan 2021
Senior couple in kitchen, enjoying their retirement

Will your retirement savings last as long as you need them to? It's a crucial question, and one that a financial adviser will assess when looking at your pension savings and investments and your spending habits.

Since the pension freedoms were introduced in 2015, people have a lot more choice in how and when to access their pension fund. But without guidance and support from their pension provider or a financial adviser, many older savers are spending at a rate that will see their Defined Contribution (DC) pension savings running out with a third of their retirement still ahead, meaning they could spend their final years reliant on the state pension.

That's according to the New Choices, Big Decisions study published by workplace pension provider the People's Pension and asset manager State Street Global Advisors.

Based on interviews with 50 savers who are either approaching retirement or have already finished their careers, including 30 who took part in an earlier study in 2015, the research revealed that around three in four (74%) 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.

The report said: "Pension freedoms have reframed pensions from being an 'income for life' to 'money for retirement'. Members now fundamentally see their DC pots as just another form of savings."

It also warned of the "ostrich effect" whereby people prefer not to contemplate their later years and think they will be OK if their savings run out.

Consultancy Ignition House, which carried out the research, found that many savers are scared of planning for the future as they are reluctant to discover the "truth" about their savings. 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, which means they won't leave a product or change a drawdown withdrawal rate once they have signed up.

Pension providers can help by giving people a safe guided path into retirement, rather than the complex array of decisions they currently face, the report said.

Pension schemes should be required to guide members to products which match retirement risks, including living longer than they had planned for, to help ensure that savers have an income throughout their retirement, according to Phil Brown, director of Policy and External Affairs at B&CE, the provider of the People's Pension.

"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," Brown said. "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?"

Fidelius can support you in planning and preparing for retirement. And when you do retire, we can help arrange a guaranteed income for life, or invest funds to provide a flexible and potentially growing income over the years.

Get in touch with us today to learn more.