We are almost six months into the new pension freedoms and already they are prompting a profound shift in investor behaviour. According to statistics from the ABI, the number of annuities sold in April to June of this year was 17,800, compared to 46,400 for the same period last year. However, this is not the whole story. Although many may have chosen not to commit to an annuity, it is becoming clear that retirees still do not feel equipped to make the right decisions about their retirement finances.
With increased flexibility comes greater responsibility. Retirees have a unique opportunity to shape their post-retirement financial planning as they wish, but poor decisions at this stage can be life-changing and the need for people to understand the risks of longevity has never been greater. The financial services industry needs to ensure that retirees do not make life-changing choices without proper consideration of their options.
We believe that, to date, too much focus has been placed on the size of a pension pot with rather less consideration of the income people require. People need help to understand what they will need in retirement, whether they are currently on track to achieve their desired goal, and if not, what they need to do to close this gap. There are undoubtedly longevity risks, but people need these explained properly without terrifying them.
There is still a clear knowledge gap. BlackRock’s last Investor Pulse survey revealed 28 per cent of people aged 55 to 74 didn’t know where they were going to put their retirement savings after April 2015. It also showed that investors still favour cash for a large chunk of their savings, which may not protect them from inflation over the long term. It will be interesting to see how that figure has, if at all, changed in the next edition of the investor pulse.
Many retirees recognise that they will have to pay for advice – over half, according to a recent survey by consultancy group PWC. For the remainder, the Government is aiming to provide simplified advice through its Pensions Advisory Service and other outlets in order to help retirees make appropriate decisions about their long-term wealth. Equally, employers are playing a role in ensuring that their employees are well-informed about the opportunities and risks of the new rules.
But the industry can still do its bit. The PwC survey indicated that only 36 per cent of pension holders said they’d received any information or guidance from their providers ahead of the new rules coming into effect. This will increase.
At BlackRock, we have just launched our CoRI tool, which aims to improve and simplify the way individuals plan for retirement, and help people visualise their financial future. This type of initiative is being seen across the wider financial services industry and we expect to see more.