TWO THIRDS UNCERTAIN HOW TO MANAGE RETIREMENT INCOME

• 66% do not know how much they should withdraw from their retirement fund each year
• Increasing life expectancy to stretch retirement funds – but just 12% of retirees are spending less to make it last longer
• Just 16% of all retirees have a percentage of their pension fund invested in stocks to provide growth – versus 61% who receive ongoing face-to-face advice

Pensions freedom has meant individuals have greater choice than ever before around how they manage their retirement savings through later life, however new research from St. James’s Place’s study into intergenerational wealth and retirement planning reveals high levels of uncertainty about how to structure a retirement income.

Insight from the study, conducted among 4,000 adults in the UK¹, shows two thirds (66%) feel uncertain how to manage their retirement income, stating they have no idea how much they should withdraw from their retirement fund each year in percentage terms. For those already in retirement who have started drawing upon their funds, two thirds (64%) admit they hadn’t really thought about the level of funds available to them or did not know what to expect. This is despite half (49%) of retirees with pension savings drawing on their funds immediately after retiring. A quarter (26%) of retirees also admit they underestimated how much income they needed.

Implications of increased life expectancy

Increasing life expectancy means retirees need to plan to stretch retirement funds for longer, according to ONS data².. Both men and women are predicted to live longer than ever before, however currently, only one in ten (12%) retirees are specifically spending less to ensure their pension pot is extended.

Furthermore, while 59% of retirees have thought about whether they may require care at some point in their retirement, just 6% are spending less because they are concerned about care costs. This is despite 45% of those who have thought about the cost of care stating they do not have sufficient funds in place for it.

Growing wealth in retirement

While funds are being stretched and retirees are trying to navigate pension decumulation, only a small number of retirees (16%) have a percentage of their pension fund invested in stocks to provide growth during their retirement – though this quadruples among those who receive ongoing face-to-face advice (61%).

Claire Trott, Head of Pensions Strategy at St. James’s Place, says: “Handling the decumulation period is just as important as planning your finances for retirement. With people living for longer, retirement funds for current and future retirees will be required to stretch further than ever before, especially as an increasing number of people will be relying on a defined contribution pot as their main pension provision. It’s clear that financial planning needs to reflect the different stages of retirement and, as part of this, the investment approach needs to adapt to funding a number of big outgoings later in life. Despite this, only a small proportion continue to make efforts to grow their assets whilst in retirement.

“It’s difficult to know when, or how much, you should withdraw from your pot, and this is where financial advice can make a real difference. FCA³ data shows 48% of pension plans were accessed without advice or guidance within the last financial year, but our research finds significantly more pre-retirees that receive ongoing face-to-face advice feel better prepared for retirement (64%) than those that do not receive advice (29%). Having more clarity and guidance on dealing with pension decumulation, and preparing for the entirety of retirement, will help reassure individuals and ease the pressure on finances later in life.”