sos2020 finance launch presentation

The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.

Here today, gone tomorrow:

How today’s retirement choices couldaffect financial resilience over the long term

Ben Franklin, Senior Research Fellow, International Longevity Centre

@ilcuk @bjafranklin


What is this report all about?

In response to concerns about new freedoms.

Quantifies potential scale of consumer harm for those about to retire over next 30 years.

Identifies most “at risk” consumer segments.

Suggests key considerations for different types of consumers.

Makes recommendations to increase consumer safeguards.


How do we get there: defining those about to retire with DC pots in England


The different consumer segments with DC wealth


…created four stylised scenarios regarding choices in the new world

1. Annuitise

2. Blow the pot

3. Put everything in a low interest savings

account

4. Keep the fund invested (income drawdown)


Modelled the impact of different choices on retirees’ finances throughout retirement

Total income per annum in retirement based on:

– Their defined benefit entitlement.

– Their state pension entitlement.

– The stylised choices individuals make regarding

their DC wealth.

For simplicity we excluded additional pensioner benefits, taxation and liquid savings from our income calculations.


What did we find?

Indicative replacement rates for different consumer segments


In focus: the shape of retirement income implied through savings account scenario


The shape of retirement income implied through income drawdown


Different consumers will need to take different approaches to their

retirement.

Those with high concentration of DC (some 850,000 people) most at

risk if they blow DC savings. For these individuals, annuitising at least

part of their DC wealth makes sense.

Those with DB savings are least at risk – even if they blow their DC

savings they can still fall back on their DB pots (450,000 people).

But there are many who will still have low incomes even if they

annuitise due to low levels of DC savings and no DB wealth (685,000

people). Care needed to avoid these individuals falling to scams and

some may need to work for longer to reduce projected shortfall.

Considerations for different consumer segments


Recommendations

New default strategy must include annuities for those

with high concentration of DC wealth.

Rebranding annuities as as guaranteed income for life.

Guidance must be available to people well in advance

of leaving the workforce and must be promoted through

multiple channels including employer.

Pension Commission needed to raise levels of long

term savings for future generations.


Many thanks

Ben Franklin

Senior Research Fellow

International Longevity Centre - UK

[email protected]

02073400440

Twitter: @ilcuk @bjafranklin

mailto:[email protected]

sos2020 finance launch presentation

Government & Nonprofit

issues of longevity

population change

nonpartisan thinktank

shape of retirement

retirement total income

different consumers

impact of different

income calculations