Retirement Sentiment Index

Transcription

1 Retirement Sentiment Index Retirement Sentiment Index October

2 Foreword In the year since we published our previous Retirement Sentiment Index report on Flexibility, we ve seen even more political instability and economic volatility. From the election of Donald Trump in the US to the minority Conservative Government in the UK, a number of political events shook global markets. However, our latest research shows that over 50s are not fazed by these events. They have responded with stoicism and maintained a sense of hope for later life. It s clear that people approaching retirement have accepted uncertainty and constant change as a way of life. This is the new normal, and whatever happens they are not going to let it stop them making the most of their retirement. So, this report is focused on how retirees are expanding their horizons, whether by embracing financial risk or learning new skills and hobbies. This mindset is exemplified by a greater desire among over 50s for flexibility in their retirement finances, and more willingness to take some financial risk. This may be in response to increased choice when it comes to retirement income options, as providers launch hybrid products and media stories highlight the potential benefits of drawdown. Thankfully, this trend is supported by an upward shift in the number of over 50s planning to seek professional financial advice, although concerns remain over cost and benefit. Advisers themselves report that retirees do not fully understand how markets work and can therefore make bad decisions based on short-term fear rather than long-term needs. Financial education is key. This desire among retirees for flexibility is coupled with a desire for personal growth. They want to enhance their quality of life and learn new things. For the first time since we started conducting this research in 2015, the ability to go on holiday is now the most important thing for over 50s when thinking about their retirement finances ranked above the ability to pay the bills or afford long-term care. We also found that over 50s believe improving existing hobbies and interests or learning new ones is important in retirement. One in five say they would pursue this through an online course, so while the Government pushes for older workers to undertake apprenticeships to improve their skills, our research suggests that digital campaigns would be more successful. It s refreshing to see that the over 50s remain armed with a sense of adventure, purpose and exploration. We need to continue to support these soon-to-be retirees to fulfil their ambitions while ensuring that dayto-day economic uncertainty doesn t de-rail their plans. Andrew Tully Pensions Technical Director Retirement Advantage 2

3 Retirement Sentiment Index Chapter 1 What does the world look like for retirees today? The economic and political landscape over the past year has been volatile and at times erratic, but retirees are embracing change as the new normal Retirees are living in an increasingly unpredictable world. If last year s Brexit vote wasn t enough to throw international politics off balance, the election of Donald Trump as President of the United States and the unexpected results of the recent UK general election have left many people feeling more uncertain than ever. The economic knock-on effects of these political events are significant. Ten years on from the global financial crisis, we continue to experience economic uncertainty, the housing market is slowing down and interest rates are at a record low. Wages have largely remained stagnant or even fallen a little. And, to top it all off, rising inflation presents further financial difficulty for those over 50s who do not yet have a strategy to increase their income. As the cost of living rises, incomes will be stretched even further, which may leave pensioners unable to fulfil their retirement bucket list. With Brexit and this year s snap election, people are rightly nervous and struggling to understand how to position their portfolios in the light of uncertainty. Martin Bamford, Managing Director, Informed Choice However, our research suggests people approaching retirement have become used to unpredictable events and volatility, and now accept constant change as the new normal. Instead of allowing uncertainty to limit their lives, over 50s are focusing on the things that remain within their control and are thinking Donald Trump Rising inflation about how to make the most of their retirement. elected President Low interest rates of the USA Our latest data shows that, despite concern over the rising cost of living, the ability to go on holidays has become significantly more important to over 50s when thinking about their retirement finances in the last year and is now more important than the ability to pay the bills. In addition, fewer expect to switch to part-time work in retirement compared to a year ago. Political landscape Conservatives lose Parliamentary majority Brexit negotiations start Uncertainty over future fiscal and economic policy Acceptance of continued uncertainty and potential for future volatility Desire to make the most of retirement Economic landscape Stagnant or declining wages Slowing housing market Stock market volatility Low annuity rates These changes all show over 50s increasing appetite to use retirement to expand their horizons. 3

4 Attitudes to financial risk versus financial expectations The over 50s are becoming increasingly resilient Our latest research reveals an interesting relationship between people s appetite for financial risk and their financial expectations for retirement. This is particularly significant given the current economic climate. In the face of uncertainty, we d expect to see a substantial drop in the number of retirees willing to take financial risk and a more pessimistic outlook in terms of their financial expectations. But, in fact, we ve seen a decrease in the proportion of people unwilling to take any financial risk, which has fallen from 29% in August 2016 to 26% in June We know from conversations with financial advisers that those approaching retirement want to explore new horizons when they finish working. For many, taking some financial risk will open up such opportunities. However, only a very small proportion of over 50s (7%) prioritise growing their income in retirement. This is despite an increase in the amount of money they think they will need in retirement, which rose from 1,426 a month in August 2016 to 1,435 a month in June It s vital that those approaching retirement take a holistic approach to financial planning and are fully aware of the options available to them, so they can take sensible risks, allowing them to have the retirement they want. Appetite for financial risk among over 50s 28% would take a reasonable amount of financial risk (up from 24% in August 2016) Money over 50s expect to need in retirement per month 1,435 in June 2017 Cost of living (inflation) 2.6% in June % would not take any financial risk (down from 29% in August 2016) 1,426 in August % in August 2016 Many of today s retirees lived through the stock market crash of Some are left feeling that money invested in the markets can easily be lost. But they forget that the market today is much higher than before the crash and so those who invested have made good returns. Taking a longterm approach to financial investment is hugely important, because markets fluctuate over time. Mike LeGassick, Lifestyle Financial Planner, Manning & Company 4

5 Retirement Sentiment Index Expected length of retirement Expect to retire age Expect to live age 82 Plans for retirement 52% 25% 4% Plan to work part-time in retirement Plan to do voluntary work in retirement Expect to never stop full-time work 44% 16% 6% Plans for retirement income 39% 26% Plan to keep my pension funds invested where they can continue to grow and make withdrawals (either at regular intervals or as and when I need it) Plan to take some of my pension savings as a lump sum (in addition to a 25% tax free lump sum) and use the rest to provide a regular guaranteed income Plan to use all of my pension savings (excluding 36% 34% the 25% tax free lump sum) to provide a regular 25% 23% guaranteed income for life Our research suggests the over 50s are attracted to products which provide a regular guaranteed income. But they also want the ability to keep funds invested and dip in as necessary for life s little treats or to pay for one-off big ticket items. Although we ve seen a move from annuities to drawdown, it s important retirees understand that, with the new hybrid products available, they don t have to choose between the two it s now possible to have your cake and eat it! Andrew Tully, Pensions Technical Director, Retirement Advantage 5

6 Chapter 2 New perspectives on finance 36% of over 50s say flexibility is the most important factor when thinking about their retirement income, up from 31% last year Despite wide-spread political upset and uncertainty over future fiscal and economic policy, the top financial priorities among those approaching retirement have largely remained the same since last year; people are still looking for certainty and flexibility. Retirement is a great unknown. People struggle to come up with realistic budgets for retirement because their expenditure changes some costs go down, some go up. Thankfully, with products offering greater financial flexibility now, your budget doesn t have to be a set amount right from the start, as you can adjust as you go. Martin Bamford, Managing Director, Informed Choice Certainty and Flexibility Having a guaranteed regular income that won t fall in value over the course of their lifetime with no responsibility for managing the money themselves. Certainty Flexibility Having some level of guaranteed income, but the ability to manage the rest themselves in different ways to generate additional income, and access to cash as required. Certainty is still the most important factor for over 50s when thinking about their retirement income (45%), followed by flexibility (36%). However, we have seen the gap between the two reduce in the last year, as desire for flexibility increased from 31% in August 2016 while the desire for certainty dropped from 46%. So why do more people want flexibility? Financial advisers say their clients are motivated by a range of factors, from looking for investment growth to wanting to gift money to family or go on holiday. It s good to see clients shifting towards flexibility. While certainty will always be a focus for retirees, as they want to be sure they can pay for the essentials, flexibility is important to allow them to make the most of opportunities in retirement. Darren Cooke, Chartered Financial Planner, Red Circle Financial Planning 6

7 Retirement Sentiment Index Instant access and income growth Investing money with the aim of continued growth throughout their retirement, but with the risk of losing some or all of their savings. Income growth Instant access Being able to take their savings and spend them whenever they want to. Instant access and income growth continue to be less of a concern for those approaching retirement. In fact, the proportion of over 50s saying income growth is their top priority decreased from 9% in August 2016 to 7% in June Similarly, the proportion putting instant access first fell from 14% to 12% in the same period. Interestingly, our research shows that women are far less concerned with income growth than men, with 51% of women viewing it as their least important priority compared to 36% of men. At the same time, women are more worried about the rising cost of living. As Martin Bamford, Managing Director at Informed Choice, explains, these gender differences may be because women are generally more prudent when it comes to money management: Women tend to look at their finances line by line and make provisions for different events in much more detail than men. The expectations that men and women have throughout their working life, with women earning less in general, follows through into retirement and impacts their different expectations and priorities for retirement income. Most important factor people are looking for from their retirement income 14% instant access 9% income growth August % flexibility 46% certainty 12% instant access 7% income growth June % flexibility 45% certainty 7

8 Most important to people when thinking about their retirement finances The ability to go on holidays The ability to pay my bills Receipt 56% 63% 72% 63% The ability to start new hobbies or have new experiences The ability to pay for long-term care ROUNDTREE HOME 37% 34% 23% 22% It s an interesting time for retirees. Certainty may remain a higher priority, but flexibility is growing in importance and the closing gap between the two demonstrates a significant shift in perceptions. At the same time, income growth and instant access are important for people looking to make the most out of their retirement, so mustn t be left out of the conversation altogether. Andrew Tully, Pensions Technical Director, Retirement Advantage 8

9 Retirement Sentiment Index Biggest issues for people when they retire Having enough money to do the things I want to do The cost of living 48% 43% Health problems 30% 31% Not having saved enough to provide a comfortable income in retirement 37% 30% 33% 27% Being bored or having too much spare time Losing the social aspect of work 19% 24% 19% 20% Losing a partner or spouse 22% 19% 9

10 Appetite for financial advice Since the pension freedoms were introduced, there has been increased interest in drawdown rather than annuities, accompanied by the launch of hybrid products that combine the two. While the regulation gives retirees more options for their retirement income, it has also made the landscape more complicated for them to understand. Encouragingly, we have seen an increase in the number of over 50s planning to seek professional financial advice at 42% in June 2017, up from 38% in August However, consulting a professional financial adviser still ranks third below internet research (44%) and the Government s Pension Wise service (42%). Where do you think you will go for information on your retirement finance options? Internet research The Government s Pension Wise guidance service 43% 44% 40% 42% A professional financial adviser My pension provider Friends or family 38% 42% 33% 35% 16% 14% 10

11 Retirement Sentiment Index When we asked the over 50s why they were not intending to seek professional financial advice, the main barrier continues to be value, with 42% of respondents saying they were put off by the cost. On a positive note, trust in financial advisers has improved over the last year while we ve also seen more people thinking they would benefit from the advice received. Why are you not intending to consult a professional financial adviser when making retirement finance decisions? I m put off by the cost I don t trust financial advisers 38% 42% 38% 31% I don t feel it is necessary I don t think it will bring any benefit I trust my pension provider to provide the advice I need 29% 31% 28% 18% 16% 15% 11

12 Chapter 3 Retirement: A new opportunity to learn 65% of over 50s say improving interests or hobbies is important in retirement When we imagine our future lives, we often imagine a better version of ourselves. Most of us spend lots of time trying to improve our skillset, both in our professional and personal lives. Our research shows that this mindset carries on when we retire, and can provide both health and financial benefits. People are keen to use retirement as an opportunity to grow their skillset and learn new things. Two thirds (65%) of over 50s say improving an existing interest or hobby is important in retirement, while more than half (57%) say learning a new one is important. This positive attitude to learning mirrors the more positive attitude to retirement finance. Motivations for learning in retirement Over 50s say they want to improve or learn new skills to keep mentally healthy (72%), stay physically active (58%) and meet new people or make new friends (33%). More women are motivated by meeting new people than men (39% compared to 30%), which echoes women s higher concern over losing the social aspect of work when they retire. Retirement can sometimes be a lonely period, so it s important that financial advisers explore all aspects of life in discussions with retirees. As Martin Bamford, Managing Director at Informed Choice, says: Us financial advisers don t just do the income planning stuff! We also have conversations with retirees about how they are going to have a meaningful retirement. We ve seen our clients do some fantastic things from a social and learning perspective and they get a lot from that. Misperceptions about digital Doing an online course is the most popular way for over 50s to learn a new interest or hobby Perhaps counterintuitively, when the over 50s were asked how they would go about learning a new interest or hobby, the most popular answer was doing an online course (22%). Meanwhile 17% said they would go to college. This does not surprise financial advisers who often say that, despite popular misconceptions, the over 50s are digitally engaged and particularly open to trying new things. But the findings do suggest the Government may not succeed in its push to encourage older people into apprenticeships, with only 1% picking that as an option. 12

13 Retirement Sentiment Index New ventures, new beginnings More than 1 in 4 retirees say turning an interest and hobby into a business is important in retirement As well as a desire to learn new things in order to stay fit and healthy, our research reveals an appetite among the over 50s to use new or existing interests and hobbies to start a business, with a quarter (27%) saying this was important in retirement. However, the most common motivation was to remain busy and mentally stimulated during retirement rather than for financial gain again showing that income growth is not a high priority for many over 50s. It s encouraging to see so many people looking to expand their horizons during retirement by learning new skills. A positive growth mindset enables people to take on challenges and have new experiences. And this applies to our finances, too. Ensuring financial stability during retirement will allow people to focus on other things rather than worrying about paying the bills. Andrew Tully, Pensions Technical Director, Retirement Advantage 13

14 Chapter 4 Going away and giving back Retirees are more focused than ever on enjoying their retirement Gaining new experiences in retirement is not limited to learning new interests or hobbies. Our research shows a desire among the over 50s to enjoy their retirement, despite the doom and gloom of the current economic and political climate. Holiday fever The ability to go on holiday is now top priority for over 50s For the first time since 2015, when we started this survey, going on holiday now tops the list of what is most important to over 50s when thinking about their retirement at 63%, up from 56% in August As Mike LeGassick, Lifestyle Financial Planner at Manning & Company, says: During our working lives we all carve out time for holidays and this carries on into retirement as many people place huge importance on travelling. Retirees often have a lot of time on their hands. They want to make the most of it and do all the things they dreamt of doing but were perhaps too busy to do while working. Getting involved 1 in 5 women over 50 are likely to take up an unpaid role during retirement Giving back to society, whether financially or with their time, is also important to retirees. We found that 43% of over 50s see volunteering and doing charitable work as important in retirement, with 20% of women and 14% of men likely to take up an unpaid role during retirement. Financial advisers echo this finding, saying their clients often talk about volunteering as a way to combat loneliness by meeting new people, as well as a way to stay mentally and physically healthy. Volunteering enables retirees to get back into social situations. One of the reasons people enjoy their job is more than just about earning money. The social side of work is important and not having that anymore is one of the more difficult things for people to come to terms with when they retire. Darren Cooke, Chartered Financial Planner, Red Circle Financial Planning 14

15 Chapter 5 What have we learnt? Looking back and thinking ahead Retirement Sentiment Index This report in our Retirement Sentiment Index has focused on the social side of retirement and retirees desire to expand their horizons, as well as considering what they want from their retirement finance. It shows us that: 1. Financial education is key. History is littered with global financial shocks, but markets bounce back. Retirees are looking for flexibility in their retirement finances and increasingly willing to take some financial risk, but they don t always understand how markets work well enough to use them to their full advantage. Increased financial education for those approaching retirement could help people make best use of the different products available to them to provide certainty and flexibility without taking too much risk. Most people don t understand how financial markets work. Education around this is vital because otherwise it s difficult to talk to retirees about how financial risk can enable income growth in retirement, which is crucial for long-term stability. A lot more needs to be done by the industry to educate people about economic cycles. Mike LeGassick, Lifestyle Financial Planner, Manning & Company 2. Advice is seeing a resurgence. 42% of over 50s would seek information on their retirement finance options from a financial adviser Our research shows an increase in the number of over 50s planning to consult a professional financial adviser about their retirement finance options in the last year. And we know from advisers themselves that they ve seen an influx in enquiries since pension freedoms were introduced. These are positive trends. But more work is needed to ensure that those approaching retirement recognise the benefits of advice. The retirement income landscape has become more complicated with providers offering new generation products. Retirees seek to take control and make retirement the best it can be, despite wider uncertainty. So it has never been more important to take a holistic approach to retirement planning and make the most of the options available to them. 3. It s a myth that only millennials understand digital. 22% of over 50s would do an online course to learn a new interest or hobby The assumption that older people are digitally illiterate is flawed. ONS data shows that more than three quarters (78%) of the ageing population are now internet users, up from just half (52%) in 2011, and this figure is expected to rise further in the coming years. The over 50s are keen to learn new things in retirement, and will make use of the internet to do so. Digital innovation in financial services is evolving. Given the appetite among the over 50s to use the internet to learn, providers and advisers should also consider how it can be used to improve retirees understanding of their finance options. 15

16 Note on methodology The Retirement Advantage Retirement Sentiment Index is based on data from the following sources: Censuswide quantitative research ooa survey of 1,005 over 50s, yet to retire, with private or defined contribution pensions, conducted between 28/06/2017 and 29/06/2017. YouGov quantitative research ooa survey of 1,001 UK adults over the age of 50, with a DC pension but not yet in retirement. Fieldwork was undertaken between 15/08/2016 and 19/08/2016. Office for National Statistics Consumer Price Inflation: ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23 Office for National Statistics Bulletin on Internet users in the UK: bulletins/internetusers/

17 About Retirement Advantage Retirement Sentiment Index Retirement Advantage is a well-established company that can trace its roots back to We provide those who are in, at or approaching retirement with a range of simple, secure and flexible products to suit their needs. Every year thousands of retirees rely on us for their income. We have over 2billion of funds under our management, and a heritage dating back over 160 years. In January 2018 Retirement Advantage became part of the Canada Life Group (UK) Limited. Canada Life shares a similar heritage, and just as importantly, places the same emphasis on providing outstanding service to customers. Canada Life has operated in the United Kingdom since Today the Group offers life insurance, critical illness cover, retirement planning, annuities, investments and inheritance tax planning, looking after the needs of thousands of individuals and companies. Canada Life is itself part of Great-West Lifeco, with over 30 million customers worldwide and 760 billion in assets under administration. As part of Canada Life, Retirement Advantage has more capability than ever before to help customers feel better equipped to make the most of their retirement. Our awards The Retirement Account, our leading solution for customers who want to take control of their income in retirement, is the most innovative retirement product to appear in recent years. That s why Retirement Advantage has swept the board in industry innovation awards. But we re not just about innovation Retirement Advantage also scooped the Financial Adviser 5 Star Service award for Life and Pensions, recognised throughout the industry as the gold standard measure of service. And over the last ten years, our Equity Release products and services have been recognised time and again for their innovation, quality and value for money. Retirement Advantage is a trading name of MGM Advantage Life Limited. Retirement Advantage is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, registration number You can check these details at or by calling the FCA consumer helpline on The Retirement Account We recently launched the pioneering Retirement Account. It combines a Guaranteed Annuity, a Pension Drawdown facility and a Cash Account, all held within a single tax-advantaged wrapper written under Pension Drawdown rules. Contact us To find out more about The Retirement Account, or our range of other products you can contact us on or alternatively us at sales@retirement-advantage.com. 17

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