PensionsMar 4 2015

How advice can counter behavioural bias in retirees

      pfs-logo
      cisi-logo
      CPD
      Approx.30min
      pfs-logo
      cisi-logo
      CPD
      Approx.30min
      twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
      Search supported by
      pfs-logo
      cisi-logo
      CPD
      Approx.30min

      The vast changes in the world of pensions have focused on the technical aspects of the rule changes and how they interact with previous legislative regimes, the increasing number of auto-enrolled pension scheme members and changes to state pensions.

      We know consumers rarely engage with the world of personal finance, and less so with the even more tedious world of pensions, but ‘Lamborghini-gate’ put pensions on the map.

      Those of us familiar with the business of pensions and retirement advice know that, far from blowing pension wealth accrued over decades on a Lamborghini, most pension savers with an average pension pot of £36,300 (according to the ABI) must aspire instead to a new BMW X3, or a six-month-old Audi TT coupe with 5,000 miles on the clock.

      The new pension freedoms have been headlined as “your pension, your choice”. If a person wishes to withdraw all their savings, spend them and then become reliant on the new single-tier state pension, that is their free choice.

      But will pension savers really choose to spend the entirety of their modest wealth on one (depreciating) asset? After all, advisers would be castigated for suggesting an investment into an asset which was practically guaranteed to collapse by 40 per cent in the first year and never recover.

      Advisers would be castigated for suggesting an investment into an asset practically guaranteed to collapse by 40 per cent in the first year

      What retirees want

      Attention has turned to the importance of anticipating what consumers really will do with their pension pots. Speculation is fun, but far more important is a clear understanding of consumer behaviour, thinking about how and why they act the way they do.

      • The International Longevity Centre (ILC-UK) conducted a survey of 5,000 people aged 55-70 who are yet to retire or draw on their pension wealth. Nearly 70 per cent of those with defined contribution pensions would prefer a guaranteed income for life, while around 50 per cent wanted a guaranteed income protected against inflation.

      In contrast 7 per cent said that paying for big ticket items such as holidays or a car was most important, while 5 per cent said paying off debt was the priority.

      PAGE 1 OF 4