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The insurer and the charity for older people are calling for a “mid-retirement MOT” and plan to pilot a ‘flex first, fix later’ solution, saying just half of people aged 65-75 who do not get financial advice are confident their pension savings will last for life.
A new report, ‘Retirement Reality: Managing money in mid-retirement', commissioned by Aviva and Age UK from Ignition House, found 48% of retirees are not sure their pension savings will last as long as they will. To address the risk of running out of money and help people manage their pension, the report recommends a ‘flex first, fix later’ approach and a mid-retirement MOT, similar to the midlife MOT. Aviva and Age UK “are assessing the feasibility of piloting” such interventions.
A mid-retirement MOT “would act as a financial and lifestyle review that could include a conversation about estate planning, fraud protection, access to state benefits, and managing finances if they start to experience cognitive decline”, according to Aviva and Age UK.
The ‘flex first, fix later’ solution, pensioners access pensions via drawdown first and annuitise at a later point, echoing the ‘flex then fix’ approach advocated by thinktank the Institute for Fiscal Studies last month.
The chief executive of Age UK, Paul Farmer, said the charity frequently hears from struggling pensioners who have a small private pension about how tough they have found the last few years.
“Managing your pension and other finances becomes harder as you get older – especially where people have suffered a major life change like a bereavement or a dementia diagnosis – and so it’s of vital importance that the industry, charities, government and others can all work together to help people at this crucial point in their lives,” Farmer said.
“The mid-70s is often a point where people need to take stock and think through their options. We hope this fascinating research project lays the foundations for further support and look forward to exploring the delivery of a pilot programme together,” he added.
Doug Brown, CEO of insurance, wealth and retirement at Aviva, said: “Pensioners today clearly value financial security, but many seem to be sleepwalking into later retirement with a ‘set and forget’ approach to their retirement income. They are among the first retirees getting to grips with the complex decisions that come with pension freedoms and need more support to make choices that will work for the whole of their retirement years.”
There is a realistic chance that future pensioners will be managing money into their 90s and beyond, Brown said, facing the risk of cognitive decline. “That’s why we are working with Age UK to consider the feasibility of a mid-retirement MOT pilot to help us understand how the industry can better support people to manage their money for a secure, fulfilling later life.”
Other findings in the study suggest 64% think a private pension should provide an income for life rather than functioning as a flexible savings account, and two-thirds (65%) feel there is not enough support for people managing their financial needs as they age.
The majority (83%) said an income for life from their private pension savings has become more important to them as they get older, and the same number said they would be worried if their retirement income fell, with women more likely to say this than men (87% compared to 79%).
The research surveyed 1,000 mid-retirees aged 65-75 who have a private pension and are on a moderate retirement income, and do not pay for financial advice or have a final salary pension over £20k per year.
Jim Boyd, chief executive of the Equity Release Council, noted that since retirement can last 20 or 30 years it would be naïve to think that retirees will have exactly the same financial needs and spending patterns throughout.
“The idea of a mid-retirement MOT is an excellent one as not only will it allow people to reset their financial objectives but also consider whether assets such as housing wealth might have a role to play,” Boyd said.
How should take-up of any mid-retirement MOT be ensured?
