People planning for retirement consider it to be a harder task than naming a child or buying a house
People approaching retirement are more confused than ever before. In fact, the pensions world has got so complex that the average man (or woman) on the street finds it harder than buying a house (40%), naming a child (66%) or choosing dealing with insurance and mortgages (47%).
The data comes from research carried out by Columbia Threadneedle Investments, aimed at better understanding the challenges faced by retirees and how they plan financial matters.
The report found that one key area of confusion surrounds when people will retire, and how long retirement will last. 58% of respondents expected to retire between 60-69 and three quarters (76%) believed their retirement would last for 20 years or longer.
While people hoped to retire in their 60s, more than half (53%) accept that the reality will be working beyond the state pension age. This is especially true for the 49% who want to maintain their standard of living after they retire.
The Pensions and Lifetime Savings Association suggests that ‘maintaining standards of life’ will require a minimum annual income of £25k per year. Unfortunately, three quarters (75%) of respondents estimated that they would have less than this.
Another core area of confusion for those approaching retirement is how to convert their savings into an income. Over a third (37%) admitted they had yet to decide on what to do with their money. The reasons cited were that retirement was a long way off (30%), they didn’t know enough about the available options (23%), they don’t trust the pensions or investment industry (17%) or they weren’t prepared to pay for financial advice (14%).
Even more worrying, almost one in five baby boomers (19%) was unaware of the new UK pension freedoms, introduced in April 2015.
As DC pension pots start to form the majority of people’s pension savings, it is more important than ever before that we educate people about their at-retirement options, empowering them to make smart choices.
Chris Wagstaff, Head of Pensions and Investment Education at Columbia Threadneedle Investments, said: “People are retiring in a perfect storm of challenges and struggle to make informed decisions about how to turn their savings into a secure and appropriate stream of retirement income. They are effectively being asked to make one of the biggest financial decisions of their lives at a time when financial literacy is starting to decline and gut feel takes over.”
Jonathan Watts-Lay, Director, WEALTH at work, comments: “Employees have a lot of decisions to make when it comes to generating their retirement income. Financial education is a crucial component in helping them understand the maze of options now available and the advantages and disadvantages of those options.
It’s also important that employees understand the benefits of receiving financial advice. This will provide a solution tailored to individual needs, not only at the point of retirement but throughout retirement to take account of changing circumstances through what could be 25 years or more in retirement.”
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