A think tank has called for the introduction of a mid-retirement financial health check and financial advice for the mass market, to ensure retirees get good returns on their savings.
The International Longevity Centre-UK and Prudential jointly published a report that contradicts a popular perception that older people tend to splash their retirement cash on leisure and holidays.
The research found from the age of 50 onwards, spending on most non-essential items begins a slow decline.
It also found most UK retirees think they have a 70 per cent chance of leaving an inheritance of £50,000 or more.
The ILC-UK argued the financial services industry should consider how it can help retirees maximise the returns on these savings.
It also called for the government to develop a long-term strategy to harness the savings made by retirees to increase investment.
Given the fall in consumption during retirement, the report suggested typical decumulation strategies should prioritise flexible retirement income in the initial retirement period to help support consumption.
This flexibility, it said, should be followed by secure income in later life to ensure people do not run out of money before the end of their life.
Ben Franklin, senior research fellow at ILC-UK, said the research points to evidence of a ‘default retirement consumption path’ where consumption falls lead to savings in later life.
“This implies people may need a combination of flexibility and security of income in retirement to support higher consumption earlier on while ensuring people are still able to afford their regular bills in later life.
“Striking the right balance between flexibility and security will not be an easy task and will require financial guidance and advice throughout retirement.”
The report also noted that excess savings in retirement could actually have a negative impact on the overall economy, citing excess savings relative to investment in Japan which has acted as a drag on economic growth.
According to the report, retirees are saving £48.7bn a year, which equates to about 2.8 per cent of GDP.
Tim Fassam, head of public affairs at Prudential UK, said by having a greater understanding of spending patterns in retirement, it becomes easier to help them plan financially for retirement.
“It points to financial advice being equally important in the latter stages of retirement as at the start, and of the need for our industry to focus beyond the point at which someone retires.”
katherine.denham@ft.com
