The National Association of Pension Funds (NAPF) today (Tuesday) released new research commissioned to understand the practical experience and concerns of people aged 50 – 70 both still working and already in retirement. The report, ‘The Unpredictability of Retirement’, identified three clear groups within this demographic: ‘Satisfied Sarah & Simon’; ‘Maggie & Malcolm in the middle’; and, ‘Pinched Penny & Paul’. The research report looks at their attitudes to retirement and considers how they may be affected by the Government’s new pension reforms, ‘Freedom & Choice’, which start in April this year.
Satisfied Sarah & Simon
Sarah & Simon have worked for most, or all, their lives in roles such as a lecturer or teacher. Their average individual income when working is £37,520 and £30,000 when retired. They own and live in their home and typically have paid off the mortgage in full. On top of the State pension they also have a significant defined benefit pension through their employers. They have little or no defined contribution pension savings and so have a limited exposure to making unsuitable decisions about their pensions once the new freedoms are introduced. Sarah & Simon feel satisfied because their defined benefit pension provides them with the certainty and level of income they want or need in their retirement. Sarah & Simon are a shrinking group as defined benefit pension provision becomes less common.
Maggie & Malcolm in the middle
Maggie & Malcolm have worked for most, or all their lives, in roles similar to that of a retail manager. Their average individual income when working is £30,000 and £20,000 when retired. They own and live in their home but typically still have some mortgage to pay off. On top of the State pension they have saved into defined contribution pension schemes, again mostly through their employers, and have very little or no defined benefit pension savings.
Maggie & Malcolm are in the middle of the two groups. Like Sarah & Simon they have significant private pension provision but unlike Penny & Paul they are not used to living on a tight budget and have saved into a pension to avoid having to do so in retirement. For Maggie & Malcolm the decisions they will now have to make under the new reforms carry the greatest risk / benefit. Maggie & Malcolm now represent the largest group of non-retired 50-70 year olds at 4.8million. Looking ahead there will be many more Maggies & Malcolms than Sarahs & Simons as the shift from defined benefit to defined contribution pensions works through.
Pinched Penny & Paul
Pinched Penny & Paul have either worked for most of their lives in a factory or a similar job, or have spent limited time in paid employment due either to commitments as a carer or ill health. Their average individual income when working is £12,500 and £8,213 when retired. They do not own their own home but typically rent in the private market. Penny & Paul are used to living on a budget and while they have concerns about retirement the prospect of living on a budget is not unfamiliar. As they have little or no private pension provision beyond the State pension the pending reforms on accessing private pensions are of little relevance to them. Sadly, the number of Pinched Pennys and Pauls also looks set to rise as the cohort who missed out on a pensions reach retirement.
Understanding the reforms and seeking advice or guidance
Overall, Malcolm & Maggie view the pension reforms positively but admit they do not yet fully understand the reforms. Only one in three feel very confident about making a decision on what to do with their pension savings at retirement.
Our research indicates that most over 50 year olds who seek help with decisions on their retirement finances postpone doing so until they are close to retirement. 61% of working Maggies & Malcolms said they had not yet sought advice about their retirement finances as they feel comfortable making their own financial decisions. This percentage may reduce in time as the number of people who seek help with their finances increases as they approach retirement, but perhaps not as much as might be expected given that nearly half (48%) of the retired Maggies & Malcolms feel comfortable about making their own financial decisions and do not seek help.
Although reluctant to seek help this group are still very clear about what they want in retirement: 82% of the retired and 78% of the working Maggies & Malcolms said they would rather have a secure income for their retirement than a pot to dip into as and when they need it.
Graham Vidler, director of external affairs, NAPF, said:
“These reforms will directly affect approaching 5 million people in the next five years. There is very little time until freedoms start but there’s still a great deal of uncertainty about what people should do to make best use of the new pension reforms. The overwhelming majority of the people in the middle of these reforms tell us they want a secure income for their retirement but there’s currently no clear route for them to achieve this.
“For these reforms to give savers a chance to manage their pension savings effectively, savers need three things: awareness and understanding of the guidance they can expect; outline pathways to help them make the best use of their money throughout their retirement; and products that are easy to understand, reliable and good value. We want the Government and regulators to act quickly and work with us to ensure that ‘Freedom & Choice’ works well for everyone.”
How to relieve the pension pressure
To help Maggie & Malcolm make the best use of the choices they have under the pension reforms, they need three things:
Pathways Clearly defined pathways into retirement should be developed so that people have easy access to at least one straightforward, good value option.
Guidance The Government’s Pension wise service should be promoted heavily to ensure people use it to explore the wider range of options available to them.
Products Savers should also be able to choose from a full range of high quality products built around their needs.
Read the NAPF’s research report ‘The Unpredictability of Retirement’.
Notes to editors
The NAPF is the voice of workplace pensions in the UK. We speak for over 1,300 pension schemes that provide pensions for over 17 million people and have more than £900 billion of assets. We also have 400 members from businesses supporting the pensions sector.
We aim to help everyone get more out of their retirement savings. To do this we spread best practice among our members, challenge regulation where it adds more cost than benefit and promote policies that add value for savers.
More detail on the three groups
Satisfied Sarah & Simon (aged 50-70)
- 2.3 million working, 3.6 million retired.
- Average age: working 54 / retired 63.
- Average income: working £37,520 / retired £30,000.
- Work history: worked for most or all their lives as a lecturer or in a similar role.
- Typical pension provision: State pension and significant defined benefit pension.
- Key factor in pension provision: employer DB scheme.
- Gender: retired 62%M:38%F / working 60%M:40%F.
- Home owner: typically owner occupier often with mortgage paid off.
- Living arrangements: working 24% alone, 67% with spouse or partner, 8% with other family, 2% other / retired 26% alone, 68% with spouse or partner, 6% with other family, 0% other
Maggie & Malcolm in the middle (aged 50-70)
- 4.8 million working, 3.5 million retired.
- Average age: working 56 years old / retired 65.
- Average income: working £30,000 and retired £20,000
- Work history: worked for most / all her life as a retail manager or similar role.
- Typical pension provision: State pension and predominantly defined contribution pension.
- Key factor in pension provision: employer DC scheme.
- Gender: retired 41%M:59%F, working 57%M:43%F.
- Home owner: typically owner occupier with mortgage still to be paid off.
- Living arrangements: working 25% alone, 65% with spouse or partner, 10% with other family, 0% other / retired 32% alone, 64% with spouse or partner, 4% with other family, 0% other.
Pinched Penny & Paul (aged 50-70)
- 2.8 million working, 1.3 million retired
- Average age: working 55 years old / retired 65
- Average income: working £12,500 and retired £8,213.
- Work history: worked for most / all their life in a factory or similar role.
- Typical pension provision: State pension only.
- Gender: retired 30%M:70%F / working 32%M:68%F.
- Home owner: typically renting in the private rental market.
- Living arrangements: working 24% alone, 60% with spouse or partner, 14% with other family, 2% other / retired 34% alone, 57% with spouse or partner, 5% with other family, 4% other.
About the research
In June 2014 the NAPF commissioned quantitative and qualitative research to provide a clearer understanding of retirement.
The qualitative research consisted of a series of focus groups and telephone interviews in July 2014. Four focus groups were undertaken; 2 in St Albans and 2 in Manchester. Thirty telephone interviews were conducted – each 35-50 minutes in length. The sample selected consisted of a range of early, late and standard pension age retirees, pre and post retirement, with private pensions (DC and DB), and a small group of those with State pension or very small State pensions only (both pre and post retirement). The qualitative research was conducted by Sharp Research.
The quantitative research was conducted in September 2014. A phone survey of sample of 1243 adults aged 50-70 were selected, with 1000 interviews undertaken online and 243 by phone; the results weighted to be representative of the population. The quantitative research was conducted by Critical Research.
Throughout the report percentages in figures and tables may add to more than 100 per cent due to rounding.
Headline figures are based on the NAPF research and survey data grossed up against ONS data.
Lucy Grubb, Head of Media and PR, NAPF, 020 7601 1726 or 07713 073023, [email protected]
Eleanor Bennett, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]