Britons wake up to harsh realities of new pensions world
Turning point reached as majority of Britons now say they will work beyond 65, new poll shows
- Turning point reached as majority of Britons now say they will work beyond 65, new poll shows
- Employers face new risks unless they react to workers delaying retirement
- Call for employers and trustees to provide guidance to help workers navigate pensions minefield
- Search for "holy grail" of one-size-fits all DC solution is "fruitless"
- Annuities may live on as report reveals hidden demand for annuity-like product
- A third of people plan to go it alone on managing pension drawdown
A majority of UK employees now expect to keep working beyond the age of 65, a new poll shows.
More than half of the 2,000 members of defined contribution (DC) schemes, interviewed in a nationwide survey conducted by YouGov, Aon Hewitt and Cass Business School, conceded they will work past age 65. Almost one in 10 claimed they will work into their 70s, while one in 50 said they will never retire.
Most workers also expect to draw a pension of less than half their salary, consigning the old expectation of two-thirds to history. The greatest number of people - nearly half - believed their pension pot will be between 21 and 50 per cent of their salary.
The shift in employee attitudes portrays a new sense of realism among employees about their retirement prospects.
"Members of employer sponsored DC schemes have grasped the harsh realities of the 21st century pensions world," said the report's co-author, Professor Andrew Clare of Cass Business School.
"A greater number of people now expect to work beyond 65 than those who say they will retire before this age. Britons have waved goodbye to the 'golden generation' of early retirees with many considering working beyond 65 as the new norm."
Kevin Wesbroom, senior partner at Aon Hewitt, said: "There is a new found realism among employees in terms of the level of pension they can expect. For private sector DC members, the old expectation of two-thirds of pre-retirement income is now consigned to history."
The poll indicates employees are also reconsidering their approach to giving up work, with a large number intending to "glide" into retirement. A third of people expect to make a phased transition by gradually reducing their working hours.
Kevin Wesbroom questioned whether employers are prepared for the knock-on effect of older people delaying their retirement, saying: "The expectation of later retirement among workers offers significant challenges and opportunities for employers. Employees are waking up to the new realities of work - but are their employers?"
Titled 'In a brave new pensions world, what will DC members really want?', the survey presents a range of other insights for employers, trustees and product providers.
The end of one-size-fits-all?
The survey challenges the pension industry's search for the "holy grail" of a one-size-fits-all DC pensions solution. It found that DC members are planning to use a variety of other sources, including ISAs - 39 per cent of people - and property downsizing - 19 per cent - to fund their retirement.
Sophia Singleton, DC partner at Aon Hewitt, said: "As much as the industry might like to have a one-size-fits-all solution, the diversity of funding sources and personal decumulation strategies, means the search is likely to be a fruitless one. Understanding your membership and keeping on top of their evolving needs has become even more important, making the task of trustees and employers even harder."
Annuities are dead - long live annuities?
In a surprise finding, the report reveals hidden demand for an annuity-like product, which the recent changes to pension regulations were believed to have killed off.
Sophia Singleton said: "When we asked individuals about their intentions for their retirement savings, nearly 70 per cent expressed a desire for a "steady, secure income", where they will not outlive their retirement savings - an annuity in all but name.
"Annuities have often been criticised in the past for being inflexible, expensive and with zero terminal value. Our survey shows that individuals want all the positive attributes of annuities, as long as these negatives can be addressed."
The report calls for employers and trustees to provide education and guidance to their scheme members to help them navigate the new pensions minefield.
It found over a third of UK workers would prefer to make potentially life-changing decisions on their pension drawdown by managing it on their own or with the help of friends and family.
A further quarter said they would seek the help of an IFA. But the report warns the IFA market has shrunk since the Retail Distribution Review, with many of the remaining advisers focused on individuals with more than £150,000 to invest, raising concerns that the industry may not have capacity to meet demand.
Sophia Singleton said: "Taken together, our survey reinforces the message for employers and trustees to engage more with their scheme members. Employers should consider providing tools to guide members with their pension choices, while trustees should consider how they could provide guidance and education.
"The diversity of funding sources for retirement means that, in an ideal world, these planning tools would look beyond the narrow pensions sphere and would encompass all sources of potential retirement wealth."
In a brave new pensions world, what will DC members really want? Aon Hewitt and Professor Andrew Clare of Cass Business School