Emma Byron: How can we solve the retirement income riddle?

With a rapidly widening pool of people reaching retirement facing a broader range of retirement choices, Emma Byron looks at the challenges consumers face as they consider their retirement income options

An additional 8.6 million people will be aged 65 and over in just 50 years’ time. With such a rapidly widening pool of older people, retirement is already changing. The days of carriage clocks and gold-plated pensions are over and in their place we now see people approaching retirement with a much broader range of circumstances, requirements and preferences. This means the need for a significant change in our approach to later life planning and retirement income too.

The reforms of April 2015 were certainly a step in the right direction. However, if we are to help individuals shape their retirement effectively, we need to recognise the impact that financial choices can have on a person’s retirement journey.

Our recent research with cross-party think-tank Demos has made some strides towards this, looking at whether there are unforeseen effects resulting from customers’ retirement choices that sit outside the traditional financial impact. Could a customer’s choice at retirement affect their wellbeing and happiness?

Our research with Demos highlighted the potential link between the choices customers make at retirement and their wellbeing. It found that of the poorest 50% of Britons in retirement, nearly one in five who had put their money into a drawdown arrangement said they had not enjoyed their life in the past week, compared to just 8% of those with annuities. Whether we can prove a direct cause can be debated, but the research definitely warrants further investigation. It’s not about annuities or drawdown – this research should act as an indicator to the wider industry that we cannot just focus on the financial impact of retirement choices when shaping customer journeys and experience.

Legal & General recently hosted a roundtable event to present this research. We invited industry figures and commentators to provide their take on our findings and to discuss the challenges that consumers are facing as they consider their retirement income options.

Having a broad range of expertise in the room raised numerous questions about how our industry could help consumers get retirement planning right. Just a few of the opinions shared at the roundtable are included below and at Legal & General we plan to look at how we can incorporate some of this insight into our customer interaction and communication over the coming months.

“We must put the ‘enjoyable’ back into retirement. We need to be more flexible with changing customer needs and lifestyles and consider their emotions in the way we deal with them and the solutions we offer.”

“Does it do what it says on the tin? The language of pensions is not easily accessible: joint life, enhanced, indexation, flexi-access, with proportion, UFPLS, crystallisation, etc. We all do our best to explain these terms in accompanying literature, but we all stick with them. Let’s call them what they are and help customers engage more with the process.”

“A customer seldom hears from us about their pension savings until they are six months from an arbitrary date (usually set some time ago), when we send them a lot of inaccessible information which asks them to make some very big decisions about the rest of their lives. Is this the right time to start the conversation? We should talk to them more when the customer chooses to contact us. Change of address, name changes, divorce, these are times when the customer expects to hear from us, so let’s start the conversations then.”

“When it comes to making the big decisions, customers haven’t had the opportunity to practice before and won’t have the luxury of learning from mistakes. We can’t let them take on this burden without the appropriate support frameworks to help them.”

It is, however, important that we continue to look for more effective ways to consider our customers’ emotions as they think about their retirement options and this must include helping our regulators build a framework that will better assist customers.

The most shocking fact remains that today’s over-55s are spending more time buying a car than deciding how to use their pension. Planning retirement is a challenge and it’s maybe not as much fun as buying a car or remodelling our bathroom, but it is hugely important. As an industry we need to get people approaching retirement spending more time thinking ahead about the next 20 or 30 years, or they could run the risk of running out of money. This should be a wake-up call to us all to do more to engage our customers in this critically important process and to help them make choices that best suit their individual and personal retirement needs.

Emma Byron is managing director of retail retirement income at Legal & General