Individuals remain ill-equipped to manage pension and investment funds in retirement, according to new research among financial advisers.
These advisers say it is ‘retirement literacy’ not ‘financial literacy’ that is the pressing problem in the UK — with many failing to make the best use of their savings to generate an income that will deliver a comfortable lifestyle later in life.
The research, by global wealth manager GBST, found that many retirees struggle with deciding what approach to take for pension income – for instance, drawdown, guaranteed income or a blended approach. Almost one in two (44 per cent) ranked this as the biggest, or second biggest pensions-related issue facing people at retirement.
The findings are part of a new report, Managing the retirement income challenge: A global perspective, which examines the drivers of change in the global retirement landscape. With a particular focus on Australia and the UK, the report explores how current pension systems address existing and future retirement needs as well as looking at what more can be done in terms of policy, advice and technology to improve retirement outcomes.
The report also draws on third-party research and the views of several industry experts. A recurring theme is the lack of ‘retirement literacy’ in both the UK and Australia. While many consumers are adept at managing their day-to-day finances, they often feel unprepared when it comes to making appropriate choices with their long-term savings to generate an income that will last throughout retirement.
With high-quality professional financial advice out of reach for many people, due to cost or lack of access, too often the onus is on individuals to take responsibility for complex decisions at retirement.
GBST CEO Robert DeDominicis says: “Delivering a sustainable income that lasts throughout later life is one of the most important functions of retirement savings. With rising life expectancies and an ageing population, the retirement income challenge is not going away.
“Successive governments in both Australia and the UK have attempted to address the issue with regulatory change, but actual progress has been slow.
“It’s clear that many factors are contributing to the retirement income challenge and the solution will also be multifaceted. Continued government action is certainly part of the solution and hopefully, we are now seeing real momentum to effect positive change. Greater engagement with pensions and improved ‘retirement literacy’ is also crucial to ensure people make better financial decisions and achieve better financial outcomes, supported by both comprehensive, professional financial advice and providers stepping in to guide people from accumulation into decumulation.
“We believe technology forms the final piece of the puzzle, with innovation in systems, tools and products that offer flexibility and choice for people to use their pension savings in a way that suits their needs – while also ensuring they enjoy a comfortable lifestyle in retirement.
“Solving the retirement income challenge will require a significant combined effort. But the prize will be improving financial resilience among older generations without increasing the burden on future generations.”