ILC-UK slides - 16 March 2015

1. The long run implications of the
choices made at retirement
Monday 16th March 2015
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute
#SOS2020

2. Welcome
Baroness Sally Greengross
Chief Executive
ILC-UK
#SOS2020
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute

3. David Thomson
Director of Policy and Public Affairs
The Chartered Insurance Institute
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute
#SOS2020

4. Ben Franklin
Senior Research Fellow
ILC-UK
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute
#SOS2020

5. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Here today, gone tomorrow:
How today’s retirement choices could
affect financial resilience over the long term
Ben Franklin, Senior Research Fellow, International Longevity Centre
@ilcuk @bjafranklin

6. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What is this report all about?
 In response to concerns about new freedoms.
 Quantifies potential scale of consumer harm for those
about to retire over next 30 years.
 Identifies most “at risk” consumer segments.
 Suggests key considerations for different types of
consumers.
 Makes recommendations to increase consumer
safeguards.

7. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
How do we get there: defining those about to retire
with DC pots in England

8. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The different consumer segments with DC wealth

9. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The different consumer segments with DC wealth

10. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
…created four stylised scenarios regarding
choices in the new world
1. Annuitise
2. Blow the pot
3. Put everything in a low interest savings
account
4. Keep the fund invested (income drawdown)

11. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Modelled the impact of different choices on
retirees’ finances throughout retirement
 Total income per annum in retirement based on:
– Their defined benefit entitlement.
– Their state pension entitlement.
– The stylised choices individuals make regarding
their DC wealth.
 For simplicity we excluded additional pensioner benefits,
taxation and liquid savings from our income calculations.

12. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What did we find?
Indicative replacement rates for different consumer segments

13. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
In focus: the shape of retirement income implied
through savings account scenario

14. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The shape of retirement income implied through
income drawdown

15. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
 Different consumers will need to take different approaches to their
retirement.
 Those with high concentration of DC (some 850,000 people) most at
risk if they blow DC savings. For these individuals, annuitising at least
part of their DC wealth makes sense.
 Those with DB savings are least at risk – even if they blow their DC
savings they can still fall back on their DB pots (450,000 people).
 But there are many who will still have low incomes even if they
annuitise due to low levels of DC savings and no DB wealth (685,000
people). Care needed to avoid these individuals falling to scams and
some may need to work for longer to reduce projected shortfall.
Considerations for different consumer segments

16. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Recommendations
 New default strategy must include annuities for those
with high concentration of DC wealth.
 Rebranding annuities as as guaranteed income for life.
 Guidance must be available to people well in advance
of leaving the workforce and must be promoted through
multiple channels including employer.
 Pension Commission needed to raise levels of long
term savings for future generations.

17. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Many thanks
Ben Franklin
Senior Research Fellow
International Longevity Centre - UK
benfranklin@ilcuk.org.uk
02073400440
Twitter: @ilcuk @bjafranklin

18. Jackie Spencer
Pensions and Retirement Strategy Manager
Money Advice Service
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute
#SOS2020

19. John Lawson
Head of Policy, Retirement Solutions
Aviva UK
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute
#SOS2020

20. Jackie Wells
Head of Policy and Research
National Association of Pension Funds
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute
#SOS2020

21. The long run implications of the
choices made at retirement
Monday 16th March 2015
This research is kindly supported by Aviva
The venue and catering is kindly provided by the Chartered Insurance
Institute
#SOS2020