Retirees are failing to consider the impact that inflation is having on their pension savings — almost 10 years on from the introduction of pension freedom rules.
Early findings from a new longitudinal study — conducted by master trust provider People’s Partnership and State Street Global Advisers — show that as many as a million savers in drawdown are failing to take inflation into account when making decisions about their retirement savings.
The study says this could mean that people’s savings might not go as far they had anticipated — and it highlights the earlier investment decisions may no longer be appropriate, given changing economic conditions.
This study, New Choices, Big Decisions, has followed a group of older savers up to and into their retirement since 2015 and will be published in full next year.
As a result it of these initial findings the study recommends that stress-testing planning tools, offered by financial service providers, should provide a greater focus on inflation protection.
It says that pension providers should also look to strengthen the information they provide on inflation in their customer information and education resources. In response People’s People’s Partnership, which provides The People’s Pension master trust has launched a new online retirement planner to help its 6.5m savers with this issue.
People’s Partnership, director of policy Phil Brown says: “This 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 per cent and above in the 1970s and early ’80s, yet many still don’t factor in inflation when planning their finances.
“This 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.”
He adds that 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.
State Street head of retirement strategy Alistair Byrne adds: “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.”
