Blurred lines of retirement saving

Advisers need to engage with people about their retirement savings and the income they need for a comfortable old age, says Colette Dunn of Milliman

Insurers currently focus on people saving for retirement – the pre-retirement market or the “accumulation phase” – primarily through group schemes, often in the workplace and including auto-enrolment. 

People are typically only targeted individually if they are affluent, particularly since the Retail Distribution Review. The next point at which many insurers focus on their customers is at the point of retirement or a few years before. At this stage – the at-retirement market – people are looking to provide for their retirement through “decumulation” of their wealth. 

However, a number of things have changed to blur the lines between pre and at-retirement. Indeed, for many people, retirement is now a transitional state that takes place over a few years. 

Peoples’ attitudes towards retirement are changing. We believe that this is due to a combination of factors, including: 

• The marked increase in life expectancy over recent years 

• The current low interest rate environment 

• A realisation that the adequacy of retirement provision from the state is likely to reduce in the future 

• A decline in the availability of defined benefit pension schemes 

• A move towards more flexible working practices 

• The increased number of single-person households 

• The increase in the state pension age. 

People are generally retiring later. According to the Office for National Statistics, the average age at which people leave the labour market (a proxy for average age of retirement) rose from 63.8 years to 64.6 years for men and from 61.2 years to 62.3 years for women between 2004 and 2010. For men, the peak ages for leaving the labour market are 64 to 66 years and for women, the peak ages are 59 to 62 years, that is retirement peaks around the state pension age (SPA) for both sexes. 

Starting a conversation with people in their 50s or late-40s is key

Retirement has also become less of a definite line in the sand and has evolved into a journey where people gradually work less. A total of 76 per cent of those polled for the 2012 Attitudes to Pensions survey said that they would do some paid work beyond the SPA. 

Many people have existing pension provision and the number of people with some form of pension will increase as a result of auto-enrolment. However, people are often disengaged with the process of saving for their retirement. Of those questioned in the survey, 62 per cent with a private pension still had no idea or only a vague idea of what their retirement income would be. 

There is a need to engage with people about their retirement savings. Once people get into their 50s, retirement seems much more real and within reach. This is a key time to start a conversation with people about getting a better understanding of what income they will receive in retirement and, if necessary, how they can improve it. 

Starting a conversation with people in their 50s or late-40s is key as they can be brought on board to go through the life stages; taking them from pre-retirement to the eventual point of retirement and onwards through retirement where their needs will continue to evolve. 

In many cases there is currently a disjoint with the “conversation” that the financial services industry has with individuals and this needs to be resolved. There are signs that some in the industry are starting to acknowledge the need to get closer to customers as they approach retirement and this trend needs to grow.