Retirement Income 

Quarter of retirees could run out of cash

Quarter of retirees could run out of cash

More than a quarter of retirees could outlive their retirement savings as they face tough decisions on how to spend their pension pot, a survey has found.

The retirement income for some 28 per cent of savers who have large defined contribution pots, but little or no defined benefit pensions, could vary by up to 70 per cent, according to

The Evolving Retirement Outcomes report, issued by the Pensions Policy Institute.

If these individuals were to withdraw between 3.5 per cent and 10 per cent annually, the institute calculated they could spend up to 15 years in retirement after having depleted their pension pot.

The survey found that many savers were unsure about how long they expected to live in retirement.

This posed a significant challenge to retirees trying to make their savings last throughout later life.

Emma Byron, managing director for individual annuities at Legal & General, which sponsored the report, said while pension reforms had given people flexibility over what they wanted for retirement, it had also given them greater responsibility to make the right decisions.

Ms Byron said: "As this research shows, that could lead to a retirement that we didn’t anticipate, with many of us potentially outliving the money we’ve saved for later life. I believe that these findings pinpoint the importance of taking advice when it comes to planning retirement, whether it is to understand the options like annuities and drawdown, or to get a better understanding of how the choices we make might affect our experience of later life."

Ms Byron said the industry had a responsibility to raise awareness and champion the role of advice – as modern retirement planning needed to reflect the changing nature of today's retirement.

Lauren Wilkinson, a policy researcher at the PPI, said product innovation may also help people achieve appropriate retirement outcomes but further help may also be needed.

Ms Wilkinson said: "If people are engaged and informed, they are able to achieve positive outcomes using the range of products already available to them. With that in mind, policies aimed at increasing engagement before and at retirement are an important aspect of any strategy to improve outcomes."

Simon Kew, financial advisory for pensions at Deloitte and former senior adviser at London-based Jackal Advisory, said: "Much research in recent years has shown that, in many cases, people are simply not saving enough for their retirement.

"Couple the issue of the quantum of savings potentially being too low to support retirees with the ability to access pension savings and it is clear to see that there may be trouble ahead.”

Mr Kew said employers, too, needed to encourage financial education to help people understand how much they will need to save during their working life, to provide the lifestyle they envisage when they retire, along with the options available to them at their workplace.

Mr Kew said: "Ultimately, though, if enough money isn’t being saved by an individual then enough won’t be available in retirement."