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As part of our ongoing series aimed at dispelling common pension misconceptions, it’s time to challenge the traditional notion of retirement as a fairytale ending, where everyone sails off into the sunset on a dream holiday. In reality, not everyone is rushing to spend their pension pots on the fantasy.
The Retirement Nightmare: The Fear of Running Out (FORO)
Half of people aged over 55 are worried that their retirement savings won’t last their lifetime.1 This is particularly concerning as many are also underestimating their likely length of retirement and life expectancy.
- The average length of retirement is 25 years
- However, 51% of future and current retirees believe they would be retired for 20 years or less.2
This fear of financial insecurity can overshadow the more optimistic aspects of retirement planning, leading many to adopt a more cautious approach.
Data from Mercer Master Trust members reveals that while some individuals dream of sun-soaked holidays and exotic adventures, the majority prioritise the everyday routines of life over these stereotypical retirement fantasies. Here are some facts3:
- Only a third of households are planning a dream holiday, setting aside an average of just under £11,000.
- In contrast, 92% of households expect to spend an average of £1,315 per year on home entertainment
- 99% of households expect to spend an average of £10,000 per year on basic clothing and groceries.
Whether it’s due to FORO or not, it seems that when it comes to spending, retirees tend to want to keep things steady. On average, total household spending per person remains relatively constant throughout retirement, increasing slightly until around age 80, at which point it flattens out or even dips. For instance:
- Those born between 1939 and 1943 spent an average of £245 per person per week at age 67, which nudged up to £263 per week by age 75.
- Those born between 1924 and 1928, saw spending drop from £197 per person per week at age 82 to £185 at age 88.4
This indicates that individuals are rejecting the stereotypical retirement aspirations, opting instead to maintain the status quo and focus on the stability of their everyday lives.
What’s the retirement dream? Let’s get real
Does it matter whether someone wants to spend a year travelling the world or prefers long weekends away with their grandkids? Well, yes. Understanding these aspirations allows us to help people achieve their retirement goals.
As an industry, we have encouraged individuals to save through auto enrolment, an inertia-led initiative that often means minimal engagement. Most people saving in a workplace pension scheme are invested in the default fund and have not personally chosen how their pension is managed or invested.5 The problems start when it is time to access their pension; individuals are suddenly expected to engage and choose from a myriad of options for funding their retirement.
Four in ten individuals aged 50 to 64 express uncertainty about how they will access their defined contribution (DC) wealth6. Additionally, the FCA revealed that a staggering 50% of pension plans were accessed without any form of advice or guidance in 2019-207. It’s clear that a radical shake up is needed to support individuals in accessing their money in a way that aligns with their aspirations.
Navigating the retirement maze
As we work through the reforms announced in the Pensions Schemes Bill, it’s clear that understanding members’ plans and providing proactive advice is essential.
“Members need to understand the complete picture of their savings to feel confident and optimistic about their future,” explains Paul Allen, DC Strategy and Commercial Lead, Mercer. “This understanding helps them avoid overspending and potentially running out of money, whilst also preventing the fear of running out leading to underspending.
“It’s why we believe in providing support to and through retirement. It’s one thing to show a pension value, but what really brings it to life is showing what that could mean in terms of income in 10, 20, or even 30 years’ time. Mercer members have access to Destination Retirement, an online retirement and advice service, developed by Hub Financial Solutions. Available on the Mercer Money app, it allows individuals to model different scenarios, retirement ages, saving strategies as well as the ability to include their aspirations, whether that’s one dream holiday or more regular short breaks. By helping members see their complete financial picture, we spark optimism, a sentiment not traditionally associated with the ‘P’ word. This insight leads to action, helping members take the necessary steps towards a secure retirement.”
Bridging the gap
Whatever the new pension legislation ultimately mandates (and we still await the secondary legislation that will give us all the juicy details), it’s clear that the pensions industry needs to be helping people make informed, and better, decisions. Mercer’s report ‘What’s the Price of Freedom?’, highlights the need to bridge the gap between the aspirations of our members and the reality of their savings history, ensuring that more people can look forward to a secure and fulfilling future.
The Mercer Master Trust is provided by the Mercer Master Trust Trustee Board acting in conjunction with the founder of the Mercer Master Trust, Mercer Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No.984275. Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU.
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1Half of people over 55 are worried about running out of money – Which?
2Britons may outlive savings as 66% underestimate longevity
3HUB Financial Solutions Ltd Destination Retirement Service – Data March 2025
4How does spending change through retirement? | Institute for Fiscal Studies
5Summary: Understanding member engagement with workplace pensions – GOV.UK
6Individuals’ challenges managing pensions through retirement | Institute for Fiscal Studies
7Pension Freedoms: a qualitative research study of individuals’ decumulation journeys – GOV.UK
