People in the UK are spending more time buying a new car or remodelling a bathroom than deciding on how they use their pension money in retirement, according to new research by Legal & General.
The insurer’s research has found that 32% of people aged over 55 are spending less than a week to make a decision on their pension income arrangements, and to understand which products represent good value.
In contrast, 40% of over-55s say they would spend more than a week choosing a new car. The survey of more than 2,000 over-55s has highlighted a lack of knowledge about how individuals can use their pension pots in retirement, and underlined the need for better consumer education. Few respondents knew the actual rate of return they could get from their pension as income in retirement, and 23% were unable to say what rate would represent good value for money on their investments or savings.
58% of over-55s who are yet to access their pension, had not started researching their options. This is despite 52% of respondents seeing financial security as their top priority in retirement.
Emma Byron, managing director of retail retirement income at Legal & General Retail Retirement, said: “The flipside of the flexibility offered by pension reform, is that we are all now responsible for making sure our pension pots will last through our retirement. But, as a nation, we are not spending enough time thinking about this, and about how we want to use our pension. This is true both before, and in, retirement.
“Planning retirement is a challenge and it’s maybe not as much fun as buying a car or remodelling our bathroom, but it is important. We need to spend time on this vital task, or we run the risk of not having enough money to last or our investments not giving us the return we want.”
As well as struggling to find the time to plan their retirement finances or prepare for retirement, Legal & General also found consumers were concerned that their funds might not last in retirement. 18% are not confident that their pension pot is enough to cover their retirement years, and only 30% said they have never worried about their money running out early.
When it came to what represented value for money, a rate of return of between 3% and 7% was viewed as representing ‘good value’ by more than two fifths of respondents. Among those who were familiar with the options for accessing their pension, only property was seen as representing better value for money than annuities. Given that a guaranteed income was seen as the key to having an enjoyable retirement by 29%, L&G says this indicates that annuities potentially could meet both retirees’ desire for a secure income and their criteria for value without any of the risks of market fluctuations.
Byron added: “Our research shows that for retirees who want clarity and certainty around the affordability of their planned retirement, annuities clearly have the potential to meet their needs. But, there is still work to do for all of us in our sector, to ensure that planning retirement and choosing how we access our pension are clearer and hassle-free.
“We think part of that work must include speaking clearly to our customers, without any unnecessary jargon, to really show the benefits that choices like an income for life can bring for retirement. This is something we are working to improve at Legal & General, and which we believe will work hand in hand with financial advice, to help more people enjoy the retirement they’ve worked hard for.”