The following is a report by AXA Life Invest – It highlights a number of important points that I thought were relevant**
For the second year in a row now, AXA Life Invest has produced a ‘Cost of Living in Retirement’ report, to better understand pensioners’ needs.
The 2013 report examined the effect of current economic conditions on retirees’ standard of living and what the next generation of retirees can learn from the experiences of today’s pensioners. This year, AXA Life Invest has built on this research, extending it beyond today’s pensioners to people in their 50s and 60s who are approaching retirement. The resounding response is that people value certainty: they want a stable, guaranteed income that they will not outlive.
People value certainty: they want a stable, guaranteed income that they will not outlive. But people approaching retirement tend to bury their heads in the sand when it comes to their retirement savings, when in fact, they need to be given the tools to take control of their finances and place themselves firmly in the driver’s seat.*
This year the report shows that certainty is king for those approaching retirement.
- 73% of those approaching retirement said that what they would value most in a pension is a secure income in retirement
- 61% of those approaching retirement would find it beneficial to know up to 10 years n advance of their retirement the minimum amount of pension income they would receive
- 39% would invest more into their pension if they knew what their retirement income would be
Although the survey focused on UK pensioners who are not reliant on state benefits, the Cost of Living in Retirement report has revealed that people neglected to take professional
Not only do people start late when it comes to preparing for retirement and neglect to take vital financial advice, but many people approaching retirement do not know how their pension is doing:financial advice before retiring. In fact 67% of today’s pensioners surveyed never received advice from a financial adviser and, worryingly, just fewer than 40% of pensioners did not start saving for retirement until they were over 40.
- Over 7 in 10 do not know how their pension fund is invested; while around the same proportion does not know how their pension pot is performing for them.
- 40% of 50-65 year olds in employer sponsored DC schemes have never reviewed the investment performance of their pensions.
Delving further into risk, the report showed that those approaching retirement accept the principles of lifestyle investing but don’t know what this means in reality:
- 69% of those approaching retirement describe themselves as ‘risk averse’.
- Almost two-thirds (62%) agree that taking on less risk means moving their pension into safer assets such as government bonds
- But 90% of people in a DC scheme don’t realize the majority of their pension pot is invested in gilts, which are currently delivering very low returns.
Given the above, it will come as no surprise perhaps to hear that a fifth of pensioners were caught out by lower than expected annuity rates. The report showed indeed that for 20% of pensioners, their annuity rate – and therefore their retirement income – was less than they had expected. For a further 10% of pensioners, the rates were a lot less than they expected. Puzzlingly, 27% do not have an opinion about their annuity rate, vividly demonstrating the public’s lack of engagement in this important element of retirement income.
Overall, there is a worrying lack of knowledge and preparedness for retirement by many
Yet, no one should be in the position of being surprised to discover just how little their life savings have actually yielded in terms of retirement income. But this shock to the system is avoidable. It pays – both economically and psychologically – to prepare for retirement in advance and to consider all options.people in the country. Britons are oblivious to how early they need to start saving and how their fund should be performing.
In a world where risk is borne almost entirely by the individual, people are searching for a new defined benefit solution. But the 21st century version of the defined benefit pension already exists in the UK – in the form of the unit-linked guarantee. The unit-linked guarantee is the only retirement solution out there that can tell people exactly how much money they will get each year of their retirement.
Are any of the above points relevant to you? If you think we could help contact Reeves Independent on 0191 281 9862 or email firstname.lastname@example.org for a FREE introductory chat!
*AXA Life Invest’s 2013 Cost of Living in Retirement report
** The report has not been edited in anyway