Pension Freedoms Five Years On: The Member Perspective/media/Files/J/JRMS-IR/... · 2020-02-18 ·...
Transcript of Pension Freedoms Five Years On: The Member Perspective/media/Files/J/JRMS-IR/... · 2020-02-18 ·...
-
INSIGHTFUL, ACTIONABLE RESEARCH WWW.IGNITIONHOUSE.COMACTIONABLE, INSIGHTFUL RESEARCH
Pension Freedoms Five Years On: The Member Perspective
Sponsored by:
Just Group Retirement Leaders’ Summit, February 2020
-
PUBLISHED WORK
Ignition House have spoken to over 1000 people about pension freedoms
-
3
01 How are members using pension freedoms?What are they doing, and what is driving this behaviour?
02 What do members want?What do members want?What do members think of the FCA’s pathways?
OUTLINE
03 So what does this all mean?Thought starters for the rest of the day
-
FCA data shows that 2.3 million contract based pots have been accessed for the first time since April 2015
4
HOW ARE MEMBERS USING PENSION FREEDOMS?
37,1
72
40,0
20
42,3
71
33,5
61
36,8
91
33,9
75
37,9
90
35,9
87 8
0,18
2
83,4
50
83,6
87
97,9
46
90,5
04
95,7
94
95,1
77
6,74
7
7,52
1
8,70
7
10,0
70
10,4
96
13,3
71
13,3
67
244,
020
127,
908 1
68,7
65
150,
806
172,
671
137,
777
187,
645
167,
199
415,739
254,857
302,107
276,761
317,578
272,752
334,800 311,730
Apr-Sep 2015* Oct 2015-Mar 2016 Apr-Sep 2016 Oct 2016-Mar 2017 Apr-Sep 2017 Oct 2017-Mar 2018 Apr-Sep 2018** Oct 2018-Mar 2019**
Annuity Income drawdown Partial UFPLS Fully withdrawn Total
* Figures on drawdown and UFPLS were not collected in the same format between July and September 2015 and therefore have been omitted for this period** The population from which data was collected changed from April 2018 and so care should be taken in drawing comparisons between these and previous periods
Number of plans accessed for the fist time by method of access
-
Pension freedoms have switched the mental accounting of pensions from a future retirement income choice to a consumption choice
5
HOW ARE MEMBERS USING PENSION FREEDOMS?
-
6
HOW ARE MEMBERS USING PENSION FREEDOMS?
It’s a very serious matter. If I muck up at 60, I muck up for the rest of my life, I've got to get this absolutely correct and that’s the problem. It’s a minefield.Male, 64 years old.
People want to make sensible decisions…
…but, fundamental human nature makes this difficult
-
Reasons given for accessing pensions have been broadly consistent over time
7
HOW ARE MEMBERS USING PENSION FREEDOMS?
Gene
ral S
ense
of M
istru
stI don’t trust pensions
The rules mightchange – I need
to act nowAnnuities are
poor value
Fram
ing of
the P
ensio
nMy pension
feels like a windfall
It won’t make any difference
It’s not doing anything
where it is
Why wouldn’t you take your
TFC?
I’m not buying a
Lamborghini
Focu
s on t
he P
rese
ntI might not make it to retirement
I’d rather have the money
now to enjoyI can make it up later
A Ne
w So
cial
Norm
?
Am I missing
out?It must be ok!
Why not me?
I had an urgent need for money – it’s opportune that I could access my pension Ur
gent
Need
-
Lack of trust has been a consistent underlying theme over the years
8
HOW ARE MEMBERS USING PENSION FREEDOMS?
Placeholder for video as played at the summit
Source: Just Retirement leaders Summit 2018
-
Taking tax free cash is a ‘no brainer’ - but deciding what to do with the rest is much more tricky
9
HOW ARE MEMBERS USING PENSION FREEDOMS?
Placeholder for video as played at the summit
Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
-
Members are de-coupling the decision to access tax free cash (often at 55) from a retirement income decision
10
HOW ARE MEMBERS USING PENSION FREEDOMS?
Q: Why did you want to access your pension money?
Respondents typically so disenfranchised / disengaged with pensions that they want to take control of their money. No specific intention to spend the lump sum.
Because I can/ to put in the bank
Purchase (new car / holiday) Desire to spend windfall on big ticket items, such as a new car or holiday.
Help my family
Pay down debt
Provide an immediate income
Improve my propertyUsually a new kitchen or other major home improvement. Often seen as an investment (increasing the value of their home).
Typically to help children with university fees or a deposit for first house.
Usually mortgage debt, but some examples of cards/ UPLs.
Typically to provide an income bridge until SP/ DB.
Property investment
Invest for future income
-
Decision makers usually have money elsewhere they could have used instead
11
HOW ARE MEMBERS USING PENSION FREEDOMS?
Base: All UK adults aged 55-70 who have accessed a DC pension (n=223)
50% have more than £20k in other investments
11% have a second property
42% have another DC pension they have not yet accessed
39% still have an income from work
38% have more than £50k in cash savings
Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
-
12What kind of impact have pension freedoms had on UK consumers –a force for good or not? Who knows…
PRIVATE & CONFIDENTIALQ6 & Q7
8%“They’ve had a positive impact”“They’ve had a
negative impact”
“still too early to say”
“They’ve had a minimal impact”
25%62%
9%21%
So When do we think we’ll know then?
8%
Chart1
By 2022By 2022By 2022
2023 - 20252023 - 20252023 - 2025
2026 - 20302026 - 20302026 - 2030
Not until 2030 and beyondNot until 2030 and beyondNot until 2030 and beyond
Series 1
Column1
Column2
[]%
[]%
[]%
[]%
2
34
44
20
Sheet1
Series 1Column1Column2
By 20222
2023 - 202534
2026 - 203044
Not until 2030 and beyond20
-
Members are sleepwalking into retirement
13
HOW ARE MEMBERS USING PENSION FREEDOMS?
Placeholder for video as played at the summit
Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
-
Accessing a pension doesn’t mean members have a retirement plan
14
HOW ARE MEMBERS USING PENSION FREEDOMS?
Q: Have you thought about how you are going to manage financially when you come to retire?
Base: All UK adults aged 55-70 with a DC pension who have not yet retired (n=307)
50%
41%
60%
56%
43%
66%
36%
40%
32%
35%
42%
24%
13%
20%
7%
9%
15%
9%
All members who have not retired
55-59
60-64
65+
Not accessed a pension
Accessed a pension
Age
Pens
ion
decis
ion
Given it a great deal of thought Thought about it a little Not really thought about it
Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
-
Members feel very daunted by retirement income decisions
15
HOW ARE MEMBERS USING PENSION FREEDOMS?
Placeholder for video as played at the summit
Source: LGIM 4 Pots for Your Retirement
-
Retirement income decisions are often described as a ‘minefield’ –and for very good reasons
16
HOW ARE MEMBERS USING PENSION FREEDOMS?
-
17Have pension freedoms created more or less certainty for consumers? Depends which consumers…
PRIVATE & CONFIDENTIALQ11.
Much more certainty
Much less certainty
A bit more certainty
Neutral
A bit less certainty
‘High net worth’ consumers ‘Middle Britain’ consumers
NET: +35%
Don’t know
48%
13%
-15%
29%
44%
They’ve given High Net Worth consumers far more certainty about what to do with their pension savings, but pension
freedoms haven’t been nearly as helpful for Middle Britain
Chart1
DK
Much less
8
Neither/nor
41
Much more
Series 1
3
5
36
7
Sheet1
Series 1
DK3
Much less5
8
Neither/nor36
41
Much more7
Chart1
DK
Much less
27
Neither/nor
22
Much more
Series 1
2
17
25
7
Sheet1
Series 1
DK2
Much less17
27
Neither/nor25
22
Much more7
-
18
01 How are members using pension freedoms?What are they doing, and what is driving this behaviour?
02 What do members want?What do members want?What do members think of the FCA’s pathways?
OUTLINE
03 So what does this all mean?Thought starters for the rest of the day
-
‘Path of least resistance’ means that whatever the provider is offering is a very important driver of future outcomes
19
SO WHAT DO MEMBERS WANT?
0 2 4 6 8 10 12 14 16 18
Retirement modelling tool (ie how much income will Iget at retirement)
Budgeting tool (ie how much income do I need inretirement)
Income comparison tool (ie how much income could Iget from different retirement options)
Income drawdown tool (ie how much income can Iget/how long will my money last)
Offered
Notoffered
Number of providers
Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
-
Majority of members want providers to offer them a solution
20
SO WHAT DO MEMBERS WANT?
Base: All UK adults aged 55-70 with a DC pension (n=501)Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
Q: Which of the following best describes the level of support you would want your pension provider to offer as you take your pension money over time?
23%
20%
27%
54%
61%
46%
22%
19%
27%
All members
Not accessed a pension
Accessed a pension
Pens
ion
decis
ion
Do it for me - I would just like my pension provider to offer a single planDo it with me - I want to adapt any plan offered by my pension provider so that is somewhat tailored to suit meDo it myself - I am confident that I can create a bespoke plan for myself which is tailored exactly to my needs
77% want a provider solution
-
FCA pathways resonated well
21
SO WHAT DO MEMBERS WANT?
Base: All UK adults aged 55-70 with a DC pension (n=501)Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
Placeholder for video as played at the summit
-
Pathways solve a short-term issue – so what do members do after 5 years?
22
HOW ARE MEMBERS USING PENSION FREEDOMS?
Base: All UK adults aged 55-70 who have accessed a DC pension (n=223)Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
Q: Do any of the following feel like how you would want to take the money left in your pension pot?
57%
9%
20%
7%
7%
I have no plans to touch my money in the next fiveyears
I plan to use my money to set up a guaranteed income(annuity) within the next five years
I plan to start taking my money as a long-term incomewithin the next five years
I plan to take out all my money within the next five years
I want to do something different
-
Pathways don’t help members understand how to take their money
23
SO WHAT DO MEMBERS WANT?
Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
• Focus to date has been on “sustainable income” – inflation-linked income that should last until I die
• This tends to result in:• A relatively low starting income• More income when people are less able to spend it• A lot of money left on the table at death
• We constructed three different income strategies for a pot of £100,000:• Sustainable income – £3,500 per annum fixed in real terms• Higher fixed income - £5,000 per annum fixed in real terms• Flexible income – starting at £5,000 per annum but adjusted up or down depending on market
performance
• Results tested alongside potential State Pension assuming a two-person household
-
We showed members the median market outcome…
24
SO WHAT DO MEMBERS WANT?
Source: Richard Parkin Consulting using Timeline by FinalytIQ , Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
Could expect to have £142,300 left at age 95
0
5,000
10,000
15,000
20,000
25,000
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93
£3,500 a year fixed
State Pension Flexible Income
Could expect to have £9,000 left at age 95
0
5,000
10,000
15,000
20,000
25,000
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93
£5,000 a year fixed
State Pension Flexible Income
Could expect to have £83,000 left at age 95
0
5,000
10,000
15,000
20,000
25,000
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93
£5,000 a year reducing if markets do badly
State Pension Flexible Income
-
…and what they might get if markets really went against them
25
SO WHAT DO MEMBERS WANT?
Source: Richard Parkin Consulting using Timeline by FinalytIQ , Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
Could expect to have £18,200 left at age 95
0
5,000
10,000
15,000
20,000
25,000
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93
£3,500 a year fixed
State Pension Flexible Income
Money would have run out at age 86
0
5,000
10,000
15,000
20,000
25,000
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93
£5,000 a year fixed
State Pension Flexible Income
Could expect to have £30,600 left at age 95
0
5,000
10,000
15,000
20,000
25,000
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93
£5,000 a year reducing if markets do badly
State Pension Flexible Income
-
Members are realistic, and do not expect their money to last for life
26
SO WHAT DO MEMBERS WANT?
Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
Q: Thinking about your defined contribution pension(s), which of the following best describes how you think your future will look once you start to use your money?
Base: All UK adults aged 55-70 with a DC pension (n=501)
14%
11%
16%
38%
16%
6%
Once I start to use the money to live off, the money will run outwithin 5 years
Once I start to use the money to live off, the money will run outwithin 10 years
Once I start to use the money to live off, the money will run outwhen I am in in my mid 80s
I am confident that I will have enough money in my DCpension/s to live off until I die
I don’t need to use the money in my DC pension/s to live off, I have enough from other pensions and savings
Other
-
Many will want a higher income than the sustainable strategy delivers
27
SO WHAT DO MEMBERS WANT?
Base: All UK adults aged 55-70 with a DC pension (n=501)Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
Placeholder for video as played at the summit
-
Members would prefer to take the ‘gamble’ on the money running out for higher income
28
SO WHAT DO MEMBERS WANT?
Base: All UK adults aged 55-70 with a DC pension (n=501)Source: Five Years of Freedom, Evolution, Not Revolution, DCIF 2019
46%
43%
49%
30%
35%
25%
24%
22%
26%
All members
Not accessed a pension
Accessed a pension
Pens
ion
decis
ion
Lower income and very low chance of running out of moneyHigher income that should last, but could run out a long time before you dieHigher income that has a low chance of running out, but will reduce if markets do badly
54% don’t want sustainable income
-
29
01 How are members using pension freedoms?What are they doing, and what is driving this behaviour?
02 What do members want?What do members want?What do members think of the FCA’s pathways?
OUTLINE
03 So what does this all mean?Thought starters for the rest of the day
-
30
SO WHAT DOES THIS ALL MEAN?
Consistent guidance frameworks to help members understand and assess retirement income needs
Integrating support into member journeys rather than as a bolt-on
Drawdown options that recognise different income needs
Low cost default for people who don’t want to/can’t make a choice
Flexible solutions which can evolve as members’ needs change
-
INSIGHTFUL, ACTIONABLE RESEARCH WWW.IGNITIONHOUSE.COMACTIONABLE, INSIGHTFUL RESEARCH
Slide Number 1PUBLISHED WORKOUTLINEHOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? What kind of impact have pension freedoms had on UK consumers – a force for good or not? Who knows…HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? HOW ARE MEMBERS USING PENSION FREEDOMS? Have pension freedoms created more or less certainty for consumers? Depends which consumers…OUTLINESO WHAT DO MEMBERS WANT?SO WHAT DO MEMBERS WANT?SO WHAT DO MEMBERS WANT?HOW ARE MEMBERS USING PENSION FREEDOMS? SO WHAT DO MEMBERS WANT?SO WHAT DO MEMBERS WANT?SO WHAT DO MEMBERS WANT?SO WHAT DO MEMBERS WANT?SO WHAT DO MEMBERS WANT?SO WHAT DO MEMBERS WANT?OUTLINESO WHAT DOES THIS ALL MEAN?Slide Number 31