Financial Conduct Authority  

FCA says retirees are penny-pinching

FCA says retirees are penny-pinching

People in retirement are penny-pinching because of an "over-reluctance to spend", the Financial Conduct Authority's (FCA) executive director for strategy and competition has said.

Speaking at the Pensions Policy Institute yesterday (16 July), Christopher Woolard said there was a sense of frugality among some pensioners, which meant far from overspending they were actually not spending enough.

He said: "A recent IFS report shows that some retirees hold 'unrealistic expectations about [their] chances of survival', which is leading to an 'over-reluctance to spend'.

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"In other words, far from blowing their pension savings on Lamborghinis and lavish holidays, we’re seeing people penny-pinching because they’re trying to make their pot last for longer than is probably necessary."

Life expectancy is increasing, which has a knock-on effect on intergenerational wealth, with the next generation inheriting money later in life than was the case for previous generations, he said.

The FCA is recognising a shift in the markers that traditionally defined the key stages in people's financial lives, from owning a house to clearing debts, and will tackle these issues in a paper out later this year.

It will cover a host of issues including identifying any barriers which are preventing the market from innovating and meeting changing consumer demand.

The regulator had already hinted in its business plan that intergenerational issues would play a key part in its work this year.

Mr Woolard quoted Mike and the Mechanics to explain how each generation blamed the other one for their poor predicament today.

He said: "'Every generation blames the one before. And all of their frustrations, come beating on your door.’

"I’m pretty sure Mike and the Mechanics aren’t often called upon to help explain pensions policy. But I quote the 80s supergroup because they happen to have landed on a defining issue of our time - perhaps the defining issue.

"When Paul Carrack sings those lines, he could be referring to the way young people feel about getting on the housing ladder, or how people in their 50s feel about their prospects of a comfortable retirement or even the way people in their 80s worry about ill health or leaving a legacy for their children.

"Because demographic shifts and economic trends over the last thirty or so years have fundamentally reconstructed expectations about our circumstances at the beginning, middle and end of our lives."

He also used his speech to say that the pension industry must focus on the two critical phases in the pensions life cycle in a bid to improve and revive it.

This includes accumulation, which is when and how people save for retirement, and decumulation, which is what they do with those savings when they retire.

He said: "In both areas, we are driven by one overarching principle; to make markets work well. To achieve a state of affairs where as many people as possible have an income in retirement that is adequate, or at least, in line with their expectations."