IN RETIREMENT CUSTOMER SEGMENTATION

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1 For financial intermediary use only. Not approved for use with customers. IN RETIREMENT CUSTOMER SEGMENTATION In 2016, we commissioned a major survey into the attitudes and behaviours of people as they approach retirement and also the experience and views of people who have already retired. Our objective was to better understand how people think and feel about this significant change in their lives. Introduction The information provided in this document will act as an aid in helping to understand the needs, wants and behaviours of your clients. Overall, people who have retired are happier, more confident and content than those approaching retirement. The in retirement respondents generally benefited from having a higher proportion of their income guaranteed from defined benefit schemes, when compared with those approaching retirement. This may well have contributed to their overall feeling of well-being. Around two thirds of the people who completed our survey had sought professional financial advice before retiring. Those who hadn t taken professional advice were commonly found in the less well-off segments. Four key segments Methodology The research targeted people who met the following criteria: 55 years + Retirement income < 50,000 per annum Liquid assets < 500,000 Consumers with a work pension, savings > 50,000 or a home that they own We discounted people with more than 500,000 in liquid assets, or retirement income in excess of 50,000 per annum, and people living primarily on the State Pension. This allowed us to focus on the attitudes and behaviours of the majority of people in the UK who have some pension wealth or have a home that they own and perhaps some other savings and investments. Over the period from October November 2016 we carried out 3029 online interviews and a further 285 face-toface interviews. There were 1382 online interviews with people aged The remaining 1647 interviews were with people aged 65 plus most of whom had already retired. The findings for the pre-retired segments can be found separately on justadviser.com. Following are the four segments identified by our research.

2 2 IN RETIREMENT CUSTOMER SEGMENTATION Have money to enjoy retirement Chart 1: Have money to enjoy retirement This segment makes up 34% of the total number of people in our survey with an average annual retirement income of 22,000. As the name suggests, this group have more than enough to live on and usually have money left over at the end of the month. They also have more income from defined benefit pensions that any other segment. Still physically fit and socially active, they are more disposed than other segments to want to pass money to the next generation (though only 39% see this as important). There are more ABC1s in this segment than any of the other groups. Given the relative affluence of this group, they are less likely to consider lifetime s. They value professional financial advice and have a high degree of confidence that they have enough income now and that this will remain the case for the foreseeable future (given the emphasis on defined benefit pensions this is not surprising). i ve earned my retirement and i m enjoying it. my planning has paid off and i m well set for the future. 34% 39% 6% 60% Most likely to have a defined benefit pension and other savings and investments they can draw on. Highest proportion of ABC1s Put family first when making financial decisions Still physically and socially active

3 IN RETIREMENT CUSTOMER SEGMENTATION 3 Focused on themselves, enjoying life Chart 2: Focused on themselves, enjoying life Accounting for about 20% of the respondents, with an average annual income of 20,000, this segment is optimistic and excited about retirement and the future. They are more likely to be single and show very little interest in passing on wealth after they die. They re highly active physically and sociable. They have almost as much defined benefit income as the Have money to enjoy retirement segment and higher than average defined contribution pot value. This segment is confident and online savvy. They re less likely to find retirement products confusing and very likely to research online. They have more awareness of lifetime s and the highest percentage of people who have bought a lifetime. They are also the segment that is most likely to have sought financial advice at retirement. retirement gives me the chance to try new things, i ve got savings and few ties so i m excited for the future. 20% 0% 19% 6% 59% More likely to be single Family are low priority when considering their retirement income Highly active both socially and physically Highest proportion of people renting, though the majority are still homeowners

4 4 IN RETIREMENT CUSTOMER SEGMENTATION Money tied up Accounting for a third of the people we questioned, and with an average annual income of 17,000, this segment has higher levels of property equity than other segments, but below average levels of liquid assets and smaller defined contribution pots. They are more likely to have little money left at the end of each month than any of the other segments. Perhaps for this reason, they are less likely to be excited about retirement and are worried that they will be worse off in the future. They have low levels of confidence about financial matters. This segment is most likely to consider a lifetime. There is also a desire to pass wealth on to family and friends at a broadly comparable level to the Have money to enjoy retirement segment. 33% Chart 3: Money tied up retirement is challenging for me, i m still working out how best to use my pension to support me day-to-day. 40% 36% 17% 6% Less likely to have money in pensions, greater reliance on partner s income Relatively low savings, but highest proportion of property Confused by retirement options and less confident about their INCOME IN retirement most likely to have little money left at the end of the month

5 IN RETIREMENT CUSTOMER SEGMENTATION 5 Modest funds, financially cautious Chart 4: Modest funds, financially cautious This segment only accounts for 14% of the total and with an average income of 16,000 is the least affluent of the segments. They have less liquid assets, the lowest defined contribution pot value and a smaller proportion of their retirement income made up from defined benefit plans. Nevertheless, this group is actively engaged with their finances to try and make the most of their income. Naturally cautious, pragmatic and prudent they are neither optimistic or pessimistic about their future finances. my situation means that i ve got to be prudent now i m not earning. it s tough, but i feel on top of it. 39% 36% This group are the least likely to have heard of lifetime s and show little interest in considering a lifetime. They are most likely to have received information from their bank or employer when they retired (and unlikely to have received professional financial advice). 14% 8% LOWEST INCOME IN RETIREMENT COMPARED TO OTHER SEGMENTS CAUTIOUS WITH THEIR MONEY INCLINED TO SAVE THAN TO SPEND MORE LIKELY TO BELIEVE THAT THE STATE PENSION IS SUFFICIENT TO LIVE OFF

6 6 IN RETIREMENT CUSTOMER SEGMENTATION Summary Perhaps not surprisingly, the segments with the highest income seem to be enjoying retirement the most. They are also more likely to be optimistic about the future. The Money to enjoy retirement segment have the highest income and also the highest proportion of income from defined benefit schemes. Leaving money behind for loved ones is a priority for around 4 in 10 people in this segment, so Inheritance Tax Planning could be important. A lifetime isn t something they need to consider given how comfortably off they are. Focused on themselves is the second most affluent segment. With a smaller proportion of marrieds and a higher proportion of people living alone, this is a hedonistic group who plan to make the most of their retirement. Passing wealth on is not a high priority so there is limited demand for Inheritance Tax planning. However, more people in this group have bought or would consider buying a lifetime than in the other segments. This makes sense given that this group isn t planning to pass wealth on and are focused on enjoying life to the full. The segment Money tied up is a difficult segment in many ways. They are the most likely to have little money left at the end of the month. They find retirement products confusing, are uncertain about retirement and inclined to be pessimistic about the future. They do have more equity in property than other segments and are the most likely to consider a lifetime in the future. A significant number are also attracted by the prospect of passing wealth on to future generations, but it is unlikely they will exceed the Inheritance Tax exempt band so opportunities for Inheritance Tax planning are limited. Modest funds, financially cautious only account for 14% of the total population we surveyed and are the least affluent of the groups. Most likely to have received advice at retirement from their bank or their employer, this group is the least likeliest to seek advice from a financial adviser. All of the people in our survey, had retired less than 10 years previously. Consequently, long term care isn t an issue for most of these people yet. As time passes, it will become a reality for many and immediate care needs annuities could be an effective way to fund care costs at that point. It s important to establish which of the above segments your clients fit into. By doing this you can provide them with advice suited to their situation, and the options they have when in retirement. FOR MORE INFORMATION Call: myenquiry@justadviser.com Or visit: justadviser.com Lines are open Monday to Friday, 8.30am to 5.30pm Please contact us if you would like this document in an alternative format. Just is a trading name of Just Retirement Limited. Registered Office: Vale House, Roebuck Close, Bancroft Road, Reigate, Surrey RH2 7RU. Registered in England and Wales Number Just Retirement Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Please note your call may be monitored and recorded and call charges may apply /2017