By Dale Critchley, Policy Manager, Aviva
I work with actuaries so I know that the decisions actuaries make are based on the strength and quality of the data available. The more high-quality data an actuary has about the current position, and the risks and opportunities that are likely to present in the future, the more accurate their assessment will be.
If I ask one of our actuaries to model the cost of an annuity they can do it, it’s bread and butter stuff. But what if we only had a limited data set to work with:
• Assume there are no life tables, you only have your life experience to determine longevity. What age did your grandad or the latest celebrity die? Is three score years and ten a good rule of thumb? Or is it too low if you’ve been eating five a day and taking aspirin regularly?
• What about investment return? Assume you only have past performance figures going back 5 years. Imagine if all you had were two current values and a couple of projections to different dates for half a dozen pots of money to base the current funding position on.
• Imagine you’d failed your O level/GCSE maths, so you have no idea what effect inflation might have on your initial income need.
You can probably see where I’m going. Actuaries would find it difficult to come up with an accurate picture of the cost of retirement with a limited data set, so what chance does the ‘Great British Public’ have. But it’s what many people are doing when it comes to their retirement.
Our latest research found that 31% of people don’t know how much they’ve saved for retirement, the bare basics of building a plan.
When we looked at the data based on age things got really concerning. 40% of 46 to 55-year-olds we surveyed said they didn’t know how much was in their pension pots. These are people on the cusp of being able to access their pensions for the first time.
When it comes to taking benefits it’s clear that those making their own decisions are struggling to cope without a plan and a full picture of how old age is likely to pan out. The result is financial decision-making horror stories of people who’ve invested their drawdown fund in cash, taken far more regular income than might be sustainable, or paid a heap of tax on a lump sum they’ve just put in a bank account.
These are decisions made by people who don’t have the information or the skills they need. There are financial advisers who can provide solutions, but not to the whole of the market. The answer for the many lies within the pensions industry. We must use the data, the investment knowledge and actuarial skills we have, to deliver solutions that get nearer to what people need, a guaranteed income for life, while offering some of the flexibility they crave.
So, back to the quiz question - According to Aviva’s ‘Savers vs Spenders’ report, where in the UK are people most likely to identify as a saver? The answer – Leeds!
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