pension freedoms five years on: the member …/media/files/j/jrms-ir/...age pension decision given...

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Annuity Income drawdown Partial UFPLS Fully withdrawn Total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


6


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


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


INSERT Broken promises

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


Placeholder for Montage New 01

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


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


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


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


Placeholder for Montage NEW 02


Accessing a pension doesn’t mean members have a retirement plan

14


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


Members feel very daunted by retirement income decisions

15


Placeholder for Montage

Source: LGIM 4 Pots for Your Retirement

Retirement income decisions are often described as a ‘minefield’ –and for very good reasons

16


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



OUTLINE


‘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


Majority of members want providers to offer them a solution

20


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


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




Pathways solve a short-term issue – so what do members do after 5 years?

22


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



• 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


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


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




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


…and what they might get if markets really went against them

25


Source: Richard Parkin Consulting using Timeline by FinalytIQ , Five Years of Freedom, Evolution, Not Revolution, DCIF 2019


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



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




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


Members are realistic, and do not expect their money to last for life

26



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




Members would prefer to take the ‘gamble’ on the money running out for higher income

28



46%

43%

49%

30%

35%

25%

24%

22%

26%

All members


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



OUTLINE


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

pension freedoms five years on: the member …/media/files/j/jrms-ir/...age pension decision given...

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