The Pensions Opportunity Webinar - the Q&A

25 March 2015

The importance of the new pension rules is beyond doubt, exciting endless media and political comment.  Our recent Pensions study sheds light on the topic from the perspective of the people who really matter: the consumers who will form the first clients for the new regime and who will set the direction of travel for providers.

In anticipation of the introduction of the new pension rules, and based on some in-depth interviews with soon-to-be retirees, all with significant pension pots, Tony Wornell and Abi Weaver outlined seven key insights in a webinar broadcast on 19^th March 2015 (recording on demand - simply fill out the form to receive an email with the link).

In ‘The Pensions Opportunity’ webinar, we revealed:

• How consumers feel about and frame the new rules
• How to communicate with customers - into retirement and beyond
• How traditional and new providers can seize the opportunity created

Here you can find our extended Q&A session and information on what we plan to do next.

The Extended Q&A

What surprised you most about the findings?

First and foremost, the level of excitement about the changes.  There is a strong backlash against annuities and people were relieved that they no longer needed to take one and excited about the options they will have to use ‘their’ money as they please.

Secondly, we were struck by the divergent levels of knowledge across the sample.  Some individuals had latched onto the excitement without fully realising what it all meant, e.g. thinking they could now access their entire pension tax-free.

In the webinar you said that people don’t understand money in retirement; can you say a bit more about that? What is it they don’t understand?
It is about the difference between a lump of capital and the income you will have from that to live on in retirement. We showed you that example of the respondent expecting a reasonable sized pension pot (£150k) to do six or seven different jobs. The reality, pretty obviously, is that won’t be the case. She was an extreme example, probably the least informed of the people we talked to. And presumably further down the line she will discover more and learn more, and her plans may rationalise.

One of our respondents talked about ‘the long and winding road’ of 40 years of pension accumulation, and then quite suddenly at the end of your working life you stop looking at a sum of capital and start thinking about the income it will give you. People seem to be quite late into that mind-set, and then as they start to engage with it they’re just not very good at realising what sort of living that money will give them when they retire. Partly it is because the reference point tends to be the savings account, so your pension fund often looks pretty good compared to your savings account. But also I don’t think there is any widespread appreciation of the ability of money to grow and therefore what you can live safely take from your pension pot in retirement.

Did we get any feedback on how many people will take formal advice?
The honest answer is no, this was not a ‘how many’ study, it was a depth study with relatively few consumers. One way or another everyone we spoke to will want some sort of advice and guidance, whether that will be a formal review with a professional advisor or something far more informal: talking to friends and colleagues who have been through this, reading the press, looking for examples from others.  All of that is still to come, it is further down the line. At the end of the day consumers are just so hungry for advice and guidance that they are going to gobble up pretty much everything coming their way. The implication for IFAs and providers is not to expect all of them to go via formal financial review. I think informal knowledge, the word on the street, is going to be very important in this market.

Do we think this is the end for annuities, or is there still a future for them?
I think there is still a future: but a more limited future. We are not pensions experts, we are researchers, but what we have heard from consumers is:

1) people welcomed the wider choices and not having to annuitise;

2) the thing people liked least about an annuity, apart from low rates, is that it is a once and for all decision - so being freed of the once and for all decision would be appealing – for example, if it was possible to have fixed term annuities, a bit like a fixed term mortgage;

3) people who go their own way in early retirement might choose to have an annuity later on, when the rates are more attractive and maybe they are keener to settle for safety.

Did research show any awareness that people had effectively made decisions and were heading on a course for a particular outcome? 80% are in default funds predicated on buying an annuity and usually start de-risking investments from 5+ years out. Are people leaving decisions and planning too late - are they aware of need to plan earlier?

The people we were talking to were typically, in their own estimation, about 2-4 years away from retirement. The sense we got from talking to them is that they were actively mentally engaged with the decision but they were not yet making the decision. Partly I think that is a reflection of natural behaviour in this market, where our strong sense is, that the action is all in the last year before retirement. Secondly, though, the context has changed and that is causing people to think earlier now than they probably would have done in the past. There’s more to think about, and the things to think about are more engaging. We didn’t get any sense from our interviews that people were regretting that they had missed some key decision. We had no sense that people felt they were locked in at this relatively early stage.

Additional comment: The questioner may have been interested in how pension pots were being invested and whether we saw any change in the historic pattern of de-risking as retirement approaches (eg moving out of equities and more into bonds or fixed interest).  We cannot offer any comment on this.  The issue was not raised by any respondents during the interviews and we ourselves did not ask direct questions about this.  The research technique we used avoids the use of direct questions except to search for the causes and consequences of issues initially surfaced by respondents.

There has been talk of a wall of pension money going the BTL market.  Did anyone state that they intended using their pension in this way?

Yes, one of our respondents did raise the possibility of buying an investment property.  Others already had BTL investments and wondered aloud about whether they should sell these first or start into their pension first.  More generally, I wouldn’t be at all surprised if we do see more investment into the BTL market using pension money, especially at the younger end (people in their mid to late 50s who are still some way from actually retiring).

Are you planning for further research in the pensions’ area?

Yes!  This study was very much just a toe in the water- to see what sorts of things soon-to-be-retirees were picking up on before they went ‘live’.  We believe that this whole area will be extremely dynamic over the future weeks and months- thoughts & feelings in this area will evolve as the new regime beds in, and we want to stay abreast of that.

We are in the process of developing a continuous research programme which measures the changes in consumer awareness, attitude, intention, action and needs; both immediately as the regime changes come into effect, as well as over time.  This will be accompanied by qualitative deep-dives to explore the reasons behind the results.

We welcome you to register interest in being part of this subsequent phase of research, or indeed any further comments or queries you may have.