Less than half of retirees are confident their private pensions will last for the rest of their lives, according to research by Age UK and Aviva.
A jointly-authored report found only a quarter (26 per cent) of retired respondents said they were financially secure, with women’s finances far less robust than men’s – with only 19 per cent saying they felt financially secure compared to 32 per cent of men.
This surveyed was conducted among ‘mid-stage’ retirees, aged 65 to 75, all of whom had a private pension and were on a moderate retirement income. None of the respondents paid for financial advice or had a final salary pension over £20k per year.
The research found that 83 per cent of respondents said having an income for life becomes more important as they age. The same number said they would be worried if their retirement income fell – with women more likely to feel this way than men (87 per cent compared to 79 per cent).
The report, ‘Retirement Reality: Managing money in mid-retirement’, highlighted the fact that almost two thirds (65 per cent) said there was not enough support for people managing their financial needs as they age.
A similar proportion (64 per cent) of those surveyed also said said a private pension should provide an income for life, rather than functioning as a flexible savings account.
Aviva says these findings highlight a need for regular financial reviews within retirement – and not just in the lead up to or at retirement, as is often the case currently. As a result it is calling for the introduction of mid-retirement MOT.
It says this could offer act as a financial and lifestyle review, that as well as reviewing pension savings, could also initiative conversations about estate planning, fraud protection, access to state benefits, and managing finances if people start to experience cognitive decline.
The report also recommends that ‘flex first, fix later’ retirement income solutions – blended approaches that combine pension drawdown strategies with a later-life annuity – should become the norm. The report says these have the potential to deliver better outcomes for people approaching the later part of their life, safeguarding people against major difficulties that may lie ahead for some.
Aviva CEO of insurance, wealth & retirement Doug Brown says: “Pensioners today clearly value financial security, but many seem to be sleepwalking into later retirement with a ‘set and forget’ approach to their retirement income. They are among the first retirees getting to grips with the complex decisions that come with pension freedoms and need more support to make choices that will work for the whole of their retirement years.”
He says that modelling for the report by the Pensions Policy Institute (PPI) shows those mid-retirees over 75-years-old who are withdrawing from a £100,000 pension pot at a rate of more than 7 per cent are at significant risk of depleting pension pots prematurely, with a 10 per cent withdrawal rate expected to exhaust pension pots in 13 years. For example, a 75-year-old couple with a pension savings pot worth £100,000 who withdraw from it at a rate of 10 per cent have a 75 per cent chance that the money will run out while one of them is still alive.
Age UK CEO Paul Farmer adds: “We frequently hear from struggling pensioners, many of whom have a small private pension of their own, about how tough they have found the last few years. Managing your pension and other finances becomes harder as you get older – especially where people have suffered a major life-change like a bereavement or a dementia diagnosis – and so it’s of vital importance that the industry, charities, Government and others can all work together to help people at this crucial point in their lives.
“The mid-70s is often a point where people need to take stock and think through their options. We hope this research project lays the foundations for further support and look forward to exploring the delivery of a pilot programme together.”
Brown adds: “We want to help savers get ready for better retirements by ensuring pension savings last a lifetime. There is a realistic chance that future pensioners will be managing money into their 90s and beyond, facing major challenges that could include the cognitive decline that often comes with age.
“That’s why we are working with Age UK to consider the feasibility of a mid-retirement MOT pilot to help us understand how the industry can better support people to manage their money for a secure, fulfilling later life.”
