Editorial Comment: retirement dreams do not always match reality

A survey of 10,000 people in or approaching retirement paints a complex and nuanced picture, writes Faith Glasgow.

We have all seen the clichéed shots of well-preserved couples on beaches, smiling euphorically into the middle distance. It’s a clear message: retirement is a wonderful experience, a tonic after the exhaustion of the workplace. But in reality it’s a much less polished experience for many people, according to the findings from the Great British Retirement Survey (GBRS) released this month.

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The survey of almost 10,000 respondents in or approaching retirement was conducted by interactive investor and our sister publication Moneywise. A key message from it is that the glossy images don’t accord with real-life retirement for most people. Rather, this new phase of life brings a new set of uncertainties and worries, particularly around wealth.

In some respects, the media images of retirement are neither here nor there. I suspect that what most people dream of is peace of mind borne of the ability to live comfortably within their means – regardless of whether that translates into cocktails on Caribbean cruises or gluing themselves to the pavement for Extinction Rebellion.

Peace of mind in retirement

Key to that peace of mind, obviously, is money, or the lack of it. The survey finds that people’s biggest financial worries revolve around either running out of money in retirement (26% of respondents) or a declining standard of living in the face of inflation (23%). For retirees, the fear of a stockmarket crash hangs over 42% of respondents.

But even getting clarity on how much they can expect to live on is an increasing challenge for many. Final salary pensions that pay a clearly defined guaranteed income for life are in terminal decline, so those who are still working are increasingly less likely to have one.

Yet such schemes provide both certainty – though arguably less than might be expected – and prosperity. The survey shows 44% of those with a final salary pension have no more than a vague idea of their retirement income (which in itself shows a worrying lack of engagement), compared to 66% of those without. Moreover, 57% of respondents in final salary schemes report that their lifestyle has improved or will improve in retirement; in contrast, a similar proportion of those not in a final salary scheme say their lifestyle has deteriorated due to lack of money.

I suggest that one takeaway, in the interests of peace of mind, is the need for at least a chunk of retirement income to be guaranteed for life, and ideally index-linked too.

Disappointingly, though, although final salary pensions are on the wane, the pension freedoms that came into force in April 2015 have not spawned much in the way of innovative products combining financial security and the potential for investment growth.

Annuities, meanwhile, have fallen deeply out of fashion (only 11% of pension plans accessed in 2018/19 were used to buy one, according to the latest Financial Conduct Authority figures), but financial advisers nonetheless increasingly espouse the idea of buying an annuity to cover ‘core’ expenditure where there is no final salary pot in the picture. However, rates remain pitifully low at present.

Related to the need for financial certainty is the role that good financial advice can play in the search for peace of mind – in pulling together a holistic overview of your situation, plans, pension and other assets to provide realistic guidance on the likely value of your retirement income, and then coming up with a plan to make it happen. Yet overall, less than 30% of respondents made use of a professional financial adviser at this critical time.

The fact is that pension regulations are an absolute minefield, and it’s all too easy to blow up your best chances of a decent retirement income by making bad calls. Read this article to get some idea of the potential pitfalls.

The GBRS paints a complex and nuanced picture of retirement for today’s older generations, but it’s clear that peace of mind around their finances, though highly desirable, is an increasingly elusive goal for many.

moneyobserver.ed@moneyobserver.com

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Comments

Retirement dreams do not always match reality

Chaps. I love the articles you write to bits. I love the Observer/Guardian to bits too. However, when writing articles on under funded retirement pensions & poverty amongst our dear pensioners, why oh why do you always have to show a picture of a couple who's lifestyle clearly doesn't match the article you're writing about? It's always a European couple without a care in the world and the funds to provide for it. Please have a little humility. Pensioners are mostly not (financially) like that. When writing articles on such matters, show an 'ordinary' 'couple who aren't Jet Setting, drinking Champagne, sitting in club class, sailing around the world. Just have them sitting in their house/flat watching tv. Ok? What most pensioners aspire to and what they end up with, are in the real world, really two different things. Thanks. Richard

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