UK adults that actively engage in financial planning around retirement and have knowledge of savings and pension products are in the minority, a new study from AXA Wealth has found. Furthermore, a substantial proportion (31 per cent) of the population are simply not aware of the “pensions revolution” announced by George Osborne in March’s Budget or what the changes mean for them.
Nick Elphick, managing director of Specialist Products, AXA Wealth, said: "While the pension changes in the Budget constituted the biggest reform of pensions in over 100 years, it is alarming to discover the low levels of understanding and knowledge among UK adults. With the end of compulsory annuitisation, the flood gates have been opened to a whole new raft of at-retirement possibilities. If pension literacy is not improved many people will have insufficient means to support themselves during retirement. We can’t blame consumers for this. It is our job to communicate clearly and in everyday language.”
The study reveals that the number of UK adults that have a clear ‘financial strategy’ for their retirement savings is low. When asked which savings decisions they would make, in light of the end of compulsory annuitisation: seven per cent would take most of the money out of their pension for discretionary spending; six per cent would invest; five per cent would still buy an annuity; and eight per cent would use income drawdown.
This lack of financial strategy is mirrored by low expectations around retirement income levels: nearly two thirds (63 per cent) of respondents are worried about not having enough money in retirement. The disparity between people’s concerns over retirement and their absence of financial planning suggests that inertia or lack of awareness around retirement saving is hindering people’s chances of securing a retirement income to meet their needs.
The core issue appears to lie in the dearth of knowledge around retirement products. Of the raft of potential products designed to secure income in retirement, it is illuminating that over a third (36 per cent) of respondents had not heard of even one product presented to them. Only one product, an annuity, registered more than 50 per cent in recognition (58 per cent). This lack of knowledge around investment and savings options is likely to be exacerbated from April 2015, as providers are expected to introduce a flood of new pension investment and savings products.
Elphick concluded: “Two thirds of respondents (66%) said that their priority is maintaining their current standard of living into retirement, it is critically important that they take advice and fully consider their options, especially given that life expectancy is increasing. We expect a swathe of multi-asset and income-generating funds to be introduced as asset managers respond to the pension reforms and look to exploit the void left by the rapidly declining individual annuity market. Those who are unaware of their options are likely to miss out on the best deals or make uninformed decisions that do not meet their needs or significantly impact retirement incomes.”
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