People may be able to manage their retirement income more effectively if soft defaults that are tailored for various retirement need/desire archetypes are used, according to the Pensions Policy Institute (PPI).
The report titled How will future pensioners use guaranteed income products? highlights how various retirement strategies can help people with variable and shifting patterns of needs and wants throughout their retirement by using innovative PPI modelling.
It shows that there are archetypes of retirement wants and needs, based on qualitative data of behaviours and attitudes, that can be used to help show the optimum retirement income methods, even though at-retirement behaviour varies among individuals.
PPI argues that because people are less interested in annuities, hybrid plans that provide flexible withdrawal options and guaranteed income may become more popular in the future.
According to PPI, certain products, including variable, deferred, fixed-term, and built-in annuities, may be able to provide the desire for a guaranteed income while still allowing for some flexibility and the chance to continue reaping the rewards of investments.
Additionally, similar to the current mid-life financial MOT, a mid-retirement financial MOT could be beneficial, possibly around the age of 75 when cognitive decline may start to set in, consumption needs may start to level off, and longevity insurance becomes more crucial to protect against running out of money before death.
According to the report, seniors would benefit from continuing, free pensions advice like that provided by Pension Wise, which is available to them at any age. This advice must concentrate on the long-term effects of financial choices while also assisting consumers in better understanding the financial advantages of annuity cross-subsidisation and the consequences of longevity.
PPI senior policy researcher Dr. Mark Baker says: “As people’s working lives have changed, so have their lives in retirement. People will want to access their pension pots in different ways to meet varying needs and wants, using drawdown, annuity purchases or a combination of both.
This represents a challenge for guaranteed income providers, as new approaches will have to be sought to meet the demands of a developing and flexible market.
Timing annuity purchases with changes in need and the optimal price opportunity will require support for most people. Prompts to advice and guidance and the development of default pathways could become increasingly important for future pensioners seeking to secure a decent standard of living in retirement.”
