16 mar15 final ppt presentation - incomplete

The long run implications of the

choices made at retirement

Monday 16th March 2015

This research is kindly supported by Aviva

The venue and catering is kindly provided by the Chartered Insurance Institute

#SOS2020

Welcome

Baroness Sally GreengrossChief Executive

ILC-UK

#SOS2020



David ThomsonDirector of Policy and Public Affairs

The Chartered Insurance Institute



#SOS2020

Ben FranklinSenior Research Fellow

ILC-UK



#SOS2020

The International Longevity Centre-UK is an independent, non-partisan think-tank

dedicated to addressing issues of longevity, ageing and population change.

Here today, gone tomorrow:

How today’s retirement choices could

affect financial resilience over the long term

Ben Franklin, Senior Research Fellow, International Longevity Centre

@ilcuk @bjafranklin



What is this report all about?

In response to concerns about new freedoms.

Quantifies potential scale of consumer harm for those

about to retire over next 30 years.

Identifies most “at risk” consumer segments.

Suggests key considerations for different types of

consumers.

Makes recommendations to increase consumer

safeguards.



How do we get there: defining those about to retire

with DC pots in England



The different consumer segments with DC wealth



…created four stylised scenarios regarding

choices in the new world

1. Annuitise

2. Blow the pot

3. Put everything in a low interest savings

account

4. Keep the fund invested (income drawdown)



Modelled the impact of different choices on

retirees’ finances throughout retirement

Total income per annum in retirement based on:

– Their defined benefit entitlement.

– Their state pension entitlement.

– The stylised choices individuals make regarding

their DC wealth.

For simplicity we excluded additional pensioner benefits,

taxation and liquid savings from our income calculations.



What did we find?

Indicative replacement rates for different consumer segments



In focus: the shape of retirement income implied

through savings account scenario



The shape of retirement income implied through

income drawdown



Different consumers will need to take different approaches to their

retirement.

Those with high concentration of DC (some 850,000 people) most at

risk if they blow DC savings. For these individuals, annuitising at least

part of their DC wealth makes sense.

Those with DB savings are least at risk – even if they blow their DC

savings they can still fall back on their DB pots (450,000 people).

But there are many who will still have low incomes even if they

annuitise due to low levels of DC savings and no DB wealth (685,000

people). Care needed to avoid these individuals falling to scams and

some may need to work for longer to reduce projected shortfall.

Considerations for different consumer segments



Recommendations

New default strategy must include annuities for those

with high concentration of DC wealth.

Rebranding annuities as as guaranteed income for life.

Guidance must be available to people well in advance

of leaving the workforce and must be promoted through

multiple channels including employer.

Pension Commission needed to raise levels of long

term savings for future generations.



Many thanks

Ben Franklin

Senior Research Fellow

International Longevity Centre - UK

[email protected]

02073400440

Twitter: @ilcuk @bjafranklin

mailto:[email protected]

Jackie SpencerPensions and Retirement Strategy Manager

Money Advice Service



#SOS2020

John LawsonHead of Policy, Retirement Solutions

Aviva UK



#SOS2020

Jackie WellsHead of Policy and Research

National Association of Pension Funds



#SOS2020

The long run implications of the

choices made at retirement

Monday 16th March 2015



#SOS2020

16 mar15 final ppt presentation - incomplete

Education

issues of longevity

nonpartisan thinktank

population change

different consumer segments

avivathe venue

impact of different

dc wealth

consumer safeguards