Pension and annuity provider, Aegon urges focus on best pension annuity rates and annuity options, and states that making customers understand their decumulation options is as important as initially saving for a pension fund. The insurer is calling for a complete overhaul of how people decumulate their pension funds following research suggesting a high level of ignorance and a lack of general awareness about all but the most common retirement income options. People firmly believe accumulation is the main thrust of their financial well-being and have limited awareness of the importance of their various decumulation options, commented Jean Taylor, from OPM, which carried out the detailed research for Aegon.
Retirement income decisions focus on pension annuities and when to draw down pension benefits for the majority of people, with most participants in the research unaware of alternatives such as unsecured pensions (income drawdown) or phased retirement options, she says. In effect annuities with higher monthly payments become a default option so people miss out on the potential benefits of index-linked annuities through failing to shop around for the best deal and the best pension annuity rates, the research suggests. In fact, Aegon says people need assistance to help move away from the “traditional” idea of an idealistic retirement spent “gardening, playing golf, holidaying, and spending time with the grandkids”, towards an “evolved” idea of retirement as a time for greater active financial management.
The pensions industry as a whole, all of us, need to learn from people’s behaviour, how they see their own retirement journey then translate that into workable solutions and give people the confidence to use them, says Rachel Vahey, of Aegon. At the moment legislation, taxation, processes and the financial services retirement market are still all wrapped around the long held view of a single point of retirement, she says. However, increasing longevity means many in the UK are now entering into a “pre-tirement” period after they finish full-time work when they want some income from their various assets before locking down benefits during their eventual full-time retirement, the research suggests.
Tom McPhail, pensions manager at Hargreaves Lansdown, added that policymakers often worry giving people greater flexibility with their pension will lead them to spend their savings before they throw themselves at the mercy of the State. But Vahey says the research does actually suggest there is little evidence retirees want to rely on the State. She added that we can not just give people more information, as what they really need is more help and guidance on their annuity options, adding it is a “nice coincidence” Aegon’s new research coincides with the Government’s Financial Services Bill, published recently.
