Preparing for later life requires people to make complex plans for the unpredictable challenges they may face. Decisions about accessing pensions, in particular Defined Contribution (DC) savings, are some of the most challenging financial choices people will have to make. In a post-pension freedoms world, these are less likely to be one-off decisions made at the point of retirement. This means that many people will be making decisions about how to access and utilise their pension savings over the entirety of later life. Levels of financial capability decline as people age, though financial confidence among older people remains high. The likelihood of experiencing cognitive decline also increases over the course of later life, which can further inhibit people from managing their pension savings as they reach older ages.
Average drawdown rates appear to be increasing. In 2016/17 a little over a quarter (27%) of drawdown users withdrew at a rate of 8% or more; in 2018/19 two in five (40%) are withdrawing at this rate. Comprehensive data on how people are using the money they drawdown is currently limited, and it’s difficult to make predictions about how these trends will develop over a longer period and how this might impact people as they reach older ages.
Lauren Wilkinson, Senior Policy Researcher (PPI) said “Given the complexity of retirement decisions, many people will find it difficult to make choices that will best meet their needs over the course of later life. For some people, initiatives aimed at increasing engagement and financial capability will equip them to make more appropriate decisions. Advice and guidance also plays a vital role in supporting people while making these choices. However, most advice and guidance offerings currently focus on at-retirement decisions rather than ongoing support throughout later life. There is also a challenge around getting people to recognise the value of accessing advice and guidance. Changes to drawdown policy such as the introduction of investment pathways and requirement of an active decision to invest in cash are likely to improve outcomes for some retirees, but more support is likely to be needed going forward if later life outcomes are to improved further."
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