People’s Pension has published the latest findings of its unique longitudinal study New Choices, Big Decisions3, which has examined the retirement saving and spending habits of a selected group of older savers since the reforms were introduced in 2015. A decade on, many are still sleepwalking into retirement – unsure how to turn a pot into a pension and focused mainly on taking their full tax-free cash lump sum.
Facebook groups step in where providers fall short
Despite many attempts to improve engagement through planning tools, nudges, and guidance services, savers continue to find the pensions confusing and generic information hard to apply to their situation. Many lack confidence picking a retirement product and turn to Facebook retirement groups for help, finding them easier to navigate than official websites or guidance services.
While pension providers continue to offer more information on retirement planning, the research finds that communications often arrive at the wrong time or in the wrong tone, with little evidence they change behaviour. As a result, savers continue to make short term, convenience-led choices, rather than planning for sustainable lifetime income.
Tax-free cash rarely part of long-term thinking
The study finds that most people are continuing to take the full 25% tax-free lump sum, often while still working and when they have significant amounts of cash available in other savings. Rather than treating this as part of a long-term retirement plan, most people treat this as additional disposable income and quickly spend it on home improvements, gifts, or paying off debt, with any money left often moved into a low-interest cash savings account. Few realise that taking the money early can reduce their future retirement income or that it can be taken gradually over time.
Guided retirement critical to fixing messy retirement journeys
Since the first edition of its study in 2015, People’s Pension has called for the introduction of default decumulation products to help improve retirement outcomes. The ongoing challenges reinforces the need for guided retirement solutions to be offered to savers as an option, soon to be introduced through the Pension Schemes Bill4.
The study explores how these solutions could work in practice, testing features showing that with opt-outs work better than opt-ins, age 75 is the optimal age to introduce longevity insurance, and flexibility around early-retirement withdrawals is essential.
Negative perceptions of annuities remain entrenched, driven by worries about dying too soon to get payback from savings and wanting to leave money to families. Addressing these attitudes will be critical to the success of new guided products.
Kirsty Ross, Director of Proposition at People’s Pension, said: “This research shines a light on just how difficult it still is for the average saver to make sense of retirement saving after ten years of pension freedoms. Savers are still faced with too much complexity and the wrong kind of support, so it’s no surprise that many are turning to social media for help instead of professional sources. The system isn’t giving people the clarity or confidence they need to make decisions that will shape the rest of their lives.
“The reality is that the nice, clean vision for retirement of policymakers and pension providers rarely plays out smoothly in practice. Real-life retirement journeys are far more complex and, as our study clearly shows, people need simpler but better targeted support, underpinned by strong default pathways. Providers and policymakers must now work together to ensure new guided retirement solutions offer the flexibility, simplicity and inclusivity that savers need. These products must be backed by clear, well-timed communications that truly connect with savers and help them feel confident about their pensions throughout retirement.”
“The vast majority of savers don’t want to become pension experts; they just want straightforward options that help them turn their savings into a steady income. Guided retirement solutions have the potential to deliver that simplicity and security. The next step is to make sure these products are designed around people’s real needs, with clear communication and practical guidance that helps every saver make the most of their pension.”
Case study
Irene, aged 63, from Wiltshire has several pensions, including her current workplace pension and a Jersey pension, which she only discovered after joining a Facebook group called “Jersey 80s.” Irene is also part of two large retirement-focused Facebook communities – The Epic Retirement Club, which has 605,000 members, and Retiring on a Shoestring Budget, with 117,000 members – which she says provide her with reassurance and useful insights. “It gives me a lot of guidance,” she said. “I did kind of think, ‘Oh God, how will I cope?’ you know, so it's nice just to speak to people and then obviously get more information and things like that. I find it really interesting just to see what kind of things people are going through at the moment.”
When asked about her pension plans, Irene said she intends to take her tax-free lump sum rather than leave the money invested, explaining that she would prefer to have access to it while she can. “You don’t know how long you have,” she said. If the tax-free lump sum weren’t available, she acknowledged that she would have no choice but to leave the money in the pension, but she feels that being able to take it tax-free makes sense since other income will be taxed later. “It’s nice to be able to have this tax-free lump sum… anything extra I get after the state pension is going to be taxed anyhow.”
Irene is saving as much as possible from her salary into premium bonds, hoping to build a financial cushion as she approaches retirement. She plans to work part-time beyond state pension age due to financial pressures, but she remains concerned about meeting rental costs. “I’m kind of thinking, ‘How will I survive?’ more than anything,” she said. Irene has not reviewed her workplace pension recently, saying she has “put it to the back of her mind,” especially as her employer is changing the plan with its current pension provider.
During the Covid lockdown, Irene took the time to consolidate several old pensions and believes she may still have one left untraced. She said the process of sorting through decades of paperwork was time-consuming but worthwhile: “I spent three weeks doing that… there wasn’t much else to do.” While her Jersey pension will provide some additional income, she worries it will not be enough and plans to transfer it into savings once it starts. Overall, Irene’s experience highlights how savers often rely on peer networks for reassurance and continue to view the tax-free lump sum as a valuable opportunity in an uncertain financial future.
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