Given the complexity of retirement decisions, many people will find it difficult to make choices that best meet their needs over the course of later life.

    Preparing for later life requires people to plan for unpredictable future challenges while also dealing with immediate issues.

    We only need look at the effect of the coronavirus outbreak on pension savings for a recent example of the pension issues people are having to face.

    Decisions about accessing pensions, in particular defined contribution (DC) savings, are among the most challenging financial choices people will have to make.

    Informed DC decision-making often requires understanding of complex and uncertain concepts such as inflation, investment and market risks and longevity risk. These are concepts a lot of people struggle with.

    The introduction of pension freedoms has resulted in those reaching retirement with a DC pension pot facing an increasing array of options to choose from about how they access their savings.

    The potential long-term significance of these choices makes decisions far more complicated, and pushes the burden of managing ongoing risks further onto pension savers (as part of a wider trend).

    In many cases, this extends the need for ongoing decision-making during retirement.

    The current backdrop

    People reaching state pension age (SPA) over the next decade or so vary considerably in their pension and non-pension savings and asset portfolios.

    Within this population, there are segments who are likely to require greater support with decision-making.

    This is because they'll be more reliant on their DC savings to supplement their state pension and secure an adequate income throughout their retirement. 

    These DC savers are also likely to have riskier portfolios, lower levels of financial capability and numeracy, and pension pot sizes that mean they may not be actively targeted by advisers. 

    Previous Pensions Policy Institute analysis found that just under 700,000 people reaching SPA in England over the next 10-15 years could be considered at 'high-risk' of making poor decisions if they're not supported through guidance, advice or suitable defaults.

    There is a correlation between having low levels of numeracy and having low or no defined benefit (DB) savings to supplement DC savings.

    Those with low levels of numeracy will find decisions about accessing pension savings particularly challenging.

    But they will be at greater risk if they also aren't able to fall back on a secure source of private pension income in the form of an indexed DB pension.

    The shift to ongoing support

    In a post-pension freedoms world, these are less likely to be one-off decisions made at the point of retirement.

    People will be making decisions about how to access and use their pension savings over the entirety of later life.

    Levels of financial capability generally decline as people age, though financial confidence among older people remains high.

    The likelihood of experiencing cognitive decline also increases over the course of later life, which can further inhibit people from managing their pension savings as they get older.

    For some people, initiatives aimed at increasing engagement and financial capability will equip them to make more appropriate decisions.

    Advice and guidance also play a vital role in supporting people while making these choices.

    However, most advice and guidance tends to focus on at-retirement decisions rather than ongoing support throughout later life.

    There is also a challenge around getting people to recognise the value of accessing advice and guidance.

    Changes to drawdown policy such as the introduction of investment pathways and requirement of an active decision to invest in cash are likely to improve outcomes for some retirees.

    Yet more support is likely to be needed if later life outcomes are to improve further.

    In order to improve later life experiences, older people are likely to need additional support to remain independent for as long as possible.

    We also need to consider people who experience physical limitations before retirement, particularly those with lower levels of wealth.

    This could mean interventions at younger ages are needed to support them in healthy ageing and planning for the experiences and transitions they may face in later life.

    The introduction of the ‘mid-life financial MOT’ and the pensions dashboards, alongside existing services such as Pension Wise and simplified annual statements, will go some way to help people assess and understand their financial position. 

    Having these services is certainly a move in the right direction. 

    But the question that still needs to be asked and addressed is this.

    What more do we need to do to engage people with planning for their retirement?


    Sarah Luheshi was part of our Illuminate roundtable debate on managing the transition to retirement, which looked at how advisers can support clients with the emotional shift to retirement alongside the financial one. 

    You can watch video highlights from the debate and read the full report here

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