As savers and advisers become more concerned about the potential that retirees won’t be able to keep up with inflation and will run out of money as a result of the cost-of-living issue, the advantages acquired from the seven years of pension freedoms are now in peril, according to new research.
The AKG’s latest independent industry research paper published today in partnership with abrdn and Scottish Widows titled ‘Freedoms Revisited: Where do we go from here?’ looks at how consumer and adviser thinking is being challenged by the resurgence of high inflation and cost of living worries.
According to consumer research, the top three concerns for consumers are running out of money with 42 per cent of votes, the impact of inflation/cost of living with 40 per cent of respondents agreeing, and care expenditures as they get older which 31 per cent said.
Meanwhile, the top two concerns adviser survey respondents have for their customers are investment volatility and the impact of long-term inflation, with 67 per cent and 59 per cent of respondents expressing these concerns, respectively.
AKG communications director Matt Ward says: “Concerns around inflation and cost of living crisis are a very real threat and issue for people across the country and will have a direct impact on the considerations of pensions customers across age groups and whether in accumulation or decumulation pension phases. We have had such a prolonged period of low inflation that a lack of inflation may be almost baked into people’s assumptions and their positions/plans could be heavily destabilised.”
“The industry therefore needs to be both helpful, practical and realistic in the way in which it seeks to educate and address these issues with a wide range of pensions customers.”
abrdn head of industry change Alastair Black says: “Whether the cost-of-living crisis is short or long lived, it is a reminder about the importance of financial planning. For clients pre-retirement the current economic conditions may have a long-term impact on their plans if they cannot afford to save as much.”
Scottish Widows head of retirement solutions Jacques Bezuidenhout says: “It is positive to see consumers saving more for retirement and becoming more engaged with their pension. However, concerns remain around the number of customers not seeking advice particularly as defined contribution pension pots become more prevalent.”
Ward adds: “From an adviser perspective inflation and investment volatility represent key retirement planning concerns for clients and hence clients will need to be warned about potential impacts. Whilst economic backdrop and markets had been relatively benign since the pension freedoms changes came into force, income drawdown investment portfolios are now facing a series of challenges and will need to withstand a period of turbulence. Pension assets, and others where support required, will have to sweat for longer.”