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New research finds savers taking a chance with their pensions

New research has found that savers who have accessed cash from their pension funds using the new pension freedoms don’t regret their decisions, believing the happiness generated from spending the money now – on holidays, cars, home improvements and family – far outweighs any benefit from receiving it as a ‘paltry’ income in the future.           

It finds that even where savers are engaged with their pension, decision making can be challenging. Multiple sources of information on what to do can add confusion rather than making the picture clearer – and can lead to some savers just deciding to take action without necessarily thinking about the long-term. While it is too early to say whether or not they have made the right decision, the research shows that people are simply taking a chance and hoping for the best.

The study is the third report in the ‘New Choices, Big Decisions’ series commissioned by State Street Global Advisors and The People’s Pension. It looks at a group of savers who accessed or considered accessing their pension savings in late 2015 and early 2016, following up one year later to see how their circumstances and perspectives have changed.

The study’s findings are supported by YouGov research among those with a DC pension aged 51-70, which found that 39% of respondents surveyed would rather spend their money now and enjoy it while they can.  But there are industry fears that some may be risking running out of money in later life. 

The research highlights the need for well-designed default options and guidance at the point of retirement, to help savers provide for their future financial needs.  

Darren Philp, Director of Policy and Market Engagement at The People’s Pension, said:

“This research shows that even when savers are engaged they can still struggle to make a decision. Faced with too much information and complexity, even an engaged saver can decide to just take a chance on what the right decision is. That could lead to some pretty poor outcomes.

“We need to stop just thinking about retirement in terms of getting people to shop around to get the best deal. Because we can’t expect savers to be experts, we need good default options at all stages of the savings journey. And we need those default options to be well governed and have consumer interests at their heart. Above all savers need someone on their side.”

Alistair Byrne, Head of DC Investment Strategy at State Street Global Advisers, said:

“Many of those who have accessed their pension still focus on the short term – what they can do with the money now, rather than how it will support them in old age. It’s good to see there are few regrets, but that may change as the consequences of spending the money now and hoping for the best start to become clear.

“Good default investment options are required to support savers who want to keep their pension funds invested to provide for their financial needs through retirement.” 

The complete report is available here: One Year On: Part 3 – New Choices, Big Decisions


Note to editors

About the Ignition House study

The study was carried out by the independent research consultancy Ignition House. In Wave 1 we tracked 80 people, exploring their intentions, needs and motivations in detail, before asking them to keep an online diary for the duration of their decision-making process. They detailed their thoughts, feelings and frustrations in these diary entries, which were recorded using a mixture of video blogs, written online blogs, emails and phone interviews. At the end of this study we conducted hour long depth interviews with each respondent to explore the rationale for their final decision.

In Wave 2, we re-contacted our survey participants to explore how their lives have changed over the past 12 months and to understand, with the benefit of hindsight, how they now feel about the choices they have made. In total, 55 of our original 80 participants took part in this follow up research. Fieldwork took place between November 2016 and January 2017 and consisted of 30 minute follow up telephone discussions and additional face to face interviews to further probe interesting cases.

About the YouGov study

YouGov were commissioned to conduct an online survey that targeted members of their panel with a similar profile to those included in the Ignition House research.  In total, 962 adults from the UK were surveyed, including 469 adults aged 55 to 70 that first accessed their DC pension pot(s) after 1st Apr 2015 (‘decision-makers’) and 493 adults aged 51 to 70 that are yet to access their DC pension pot(s) (‘DC pot-holders’).  Fieldwork was conducted between 1st and 13th March 2017.

About The People’s Pension

The People’s Pension is the largest private sector master trust (multi-employer pension scheme) in the UK, with 2.5 million members and over 57,000 employers signed up. Run by B&CE, a not for profit company, it offers a simple and low cost automatic enrolment workplace pension solution for employers of any size from any sector. We tweet as @peoplespension.

About State Street Global Advisors

For nearly four decades, State Street Global Advisors has been committed to helping our clients, and those who rely on them, achieve financial security. We partner with many of the world’s largest, most sophisticated investors and financial intermediaries to help them reach their goals through a rigorous, research-driven investment process spanning both indexing and active disciplines. With trillions* in assets under management, our scale and global reach offer clients unrivalled access to markets, geographies and asset classes, and allow us to deliver thoughtful insights and innovative solutions.

State Street Global Advisors is the investment management arm of State Street Corporation.

*Assets under management were $2.47 trillion as of December 31, 2016. Please note that AUM totals are unaudited.