‘I am confused.com’
Editorial: It is a well-known behavioural trait of our species. The greater the number of options, the more difficult we find it to come to a decision on choosing one.
And so it is obvious that confusion reigns when choosing a retirement option, which is what the final part of a study which followed defined contribution members before, at and after retirement has just found. One respondent described herself as being ‘confused.com’.
Despite this, many were happy with the choice they had made; only those who had bought an annuity were likely to regret their decision.
It is tempting to conclude that the freedom reforms therefore make for happier retirees.
Let’s not forget however that it is early days. Who wouldn’t be happy if they suddenly had the cash to do up their house? The question is whether those who chose cash or drawdown will still be happy a couple of decades down the line. In short: Will they have enough money left to live on? And will annuitants still regret having opted for a secure income?
The study would need to run over a much, much longer period to allow us to draw any conclusions. Perhaps what it does indicate is that in the early stages of retirement, annuities might not be ideal.
In 2012, Willis Towers Watson analysed findings since 1998 of a US longitudinal study by the University of Michigan, concluding that satisfaction in retirement was declining overall.
However, among retirees with similar wealth and health characteristics those with annuitised incomes were happiest, the survey of 26,000 individuals found. Satisfaction with annuitisation also tended to go up the longer people had spent in retirement.
UK policymakers would sometimes do well to do a little more international comparison and let facts inform them rather than electoral tactics or, worse, ideology.
In the absence of sense in the political sphere, it is up to the industry to pick up on facts. If the same trend manifests itself in the UK as shown by the US study, for example, there might well be an opportunity to make deferred annuities the vehicle of choice for retirees.
Sandra Wolf is editor at Pensions Expert. You can follow her on Twitter @SandraCWK and the team @pensions_expert.