Planning for Retirement: the Consumer Experience in an Ageing Population

1
Planning for Retirement the Consumer Experience
in an Ageing Population

• Marcus Price
• Financial Services Authority
• January 2002

2
Contents

• Regulatory interest
• Setting the scene
• Results of consumer research
• consumer attitudes
• financial planning retirement
• advice
• products
• Conclusions

3
Regulatory Interest
4
Regulatory Interest

• Possible features of an ageing population
• greater burden of retirement provision on
  individuals
• longer period of retirement
• focus on decumulation products
• need for product flexibility
• lengthening of financial planning horizon

5
Regulatory interest

• A number of strands of work
• consumer research (January 2002)
• macroeconomic consequences (Spring 2002)
• final report The Implications of an Ageing
  Population for the FSA (Spring 2002)

6
Setting the Scene
7
Setting the scene

• The UKs population is ageing
• increasing life expectancy
• rise in mortality improvement
• falling fertility
• cohort effects (i.e. baby boomers)
• Result?
• growing proportion of older people
• mean age will increase from 38.6 to 41.9yrs

8
Setting the scene
9
Consumer Attitudes to Financial Planning
10
Consumer attitudes to financial planning

• Objectives of consumer research
• identify any gaps in provision of products and
  advice
• identify any concerns consumers have when they
  plan for their retirement
• identify implications of increasing longevity

11
Consumer attitudes to financial planning

• Key findings in the following areas
• consumers attitudes to financial planning
• the perceived need for advice and where to get it
• attitudes and experiences of particular products
  - pensions, lump sums, annuities, equity release
  and long-term care insurance

12
Financial Planning
13
Financial planning

• Younger consumers
• evidence of saving, but other priorities
• attitude to planning affected by endowments
• some pensions, but more 35 than 25-35 yrs
• Pre-retired
• greater competition between current priorities
  and long-term planning
• some focus on retirement - when how much
• time to get affairs into order and prepare

14
Financial planning

• Retired consumers
• accumulation over, time to manage finances
• stick with choices and avoid risk
• tendency to adjust lifestyle to suit income
• Women
• older women more reliant on husband
• older women lack understanding of their own need
  for provision
• younger women less focus on long-term needs then
  men

15
Financial planning
16
Financial Planning

• Prompts to making provision
• eligibility to join company pension
• natural savers
• age
• lifestyle changes

17
Advice
18
Advice

• What?
• specific products
• not planning
• not pension contributions
• not on-going advice
• Where?
• self-reliance
• adviser where relationship already exists
• employers
• dont know

19
Products
20
Products

• Pensions
• main vehicle for retirement saving
• trust despite mis-selling
• lack of understanding (e.g. investment returns
  indexation)
• company schemes seen as good easy
• personal schemes an alternative to company
• uncertainty over adequacy of pension
• mixed response to pension predictions

21
Products

• Lump sums
• widespread awareness of the options
• advice sought, often 1st time
• source of rainy day cash
• Annuities
• not widely understood
• low awareness
• some shopping around
• low level of trust

22
Products

• Equity release
• awareness, but bad publicity
• seen as risky and poor value
• reluctant to sign away security inheritance
• emergency source of cash (e.g. downsizing)
• Long-term care insurance
• awareness of state provision
• limited self-provision
• either not relevant to them or sufficient funds
• LTCI considered expensive

23
Conclusions
24
Conclusions

• Risk to consumers
• increasing burden of self-provision
• over-reliance on occupational pensions
• advice needs
• retirement planning
• timing of key decisions
• Overall, consumers not rising to the challenge

25
Conclusions

• Opportunities for providers
• changing needs of consumers
• potential in decumulation market
• advice planning
• product range

26
The impact of an ageing population for the
FSAis available as a consumer research
publication at www.fsa.gov.uk