Data analysis: Most over-55s would prefer a secure guaranteed income for life over all other retirement options, a survey has found, prompting calls for the government’s guidance guarantee to cater to this preference.
The chancellor’s 2014 Budget removed the effective requirement for scheme members to buy an annuity at retirement, after the Financial Conduct Authority concluded that 80 per cent of people who buy an annuity from their current provider would do better on the open market.
But a survey of 5,000 people released last week by the International Longevity Centre found almost 70 per cent of respondents, aged 55-70, favoured guaranteed income over one that rises and falls with the markets.
The report states: “The guidance must also be tailored to suit those with low levels of financial capability and very low risk appetite when providing support.”
It also proposes a contingency plan for those who do not make use of guidance, adding: “One measure that is urgently needed is for the Financial Conduct Authority and the Pensions Regulator to use their current powers to place responsibilities on existing pension savings providers to ask their customers a small number of mandatory questions before the customer concludes how to use their DC pension savings.”
Lord Hutton, speaking at the launch of the report, said: “Laisser faire will not be enough to avoid a possible retirement income shortfall for hundreds of thousands of people. I think it’s going to come upon us to do everything we can to avoid this.”
The survey found only 40 per cent of defined contribution pot holders had planned their retirement finances in any detail, rising to just below 60 per cent for those less than a year from retirement.
Dean Mirfin, group director at equity release provider Key Retirement, said the debate following the Budget was overly focused on the products being developed and would benefit from focusing on consumer outcomes.
He said: “When facilitated, people really have a good idea of what they’re trying to achieve… But then what you see is a huge divide [because] they don’t know how they’re going to do it. There is a real gap between the what and the how.”
Jane Vass, head of public policy at charity Age UK, said: “This isn’t going to be a once-and-for-all decision. People will need to come back to decision-making and that’s a big change.”
The survey also found almost 40 per cent of DC pot holders were planning to consult a professional financial adviser when making decisions about their retirement. However, more than 30 per cent of respondents indicated they would use the internet to help inform their decision. Many others indicated they would consult friends or relatives.
The report said: “While using a financial adviser appeared to be a favoured option amongst survey respondents, this still leaves some 60 per cent of people with DC pension pots who will not seek professional advice.”
The report warned not seeking professional guidance “could result in poor decision making”. It also found further questioning of those who did not plan to seek professional aid indicated that a lack of trust in financial advice was a key driver.
