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Rachel Vahey Pensions
Retirement is an area that is changing fast. Longer lives bring challenges such as funding an income and an increased chance of morbidity. The concept of a set retirement age is fading and people generally have a wider range of assets, such as equity in property or different types of investment, to back them up in retirement.
But I wonder if people are finding financial decisions at retirement easy or know how to approach them.
Earlier this year, Aegon commissioned the Office of Public Management to conduct some qualitative research into this. We wanted some fresh thinking to consider how people approached retirement - what are they thinking, how do they make their decisions, what experience do they refer to and what role models do they use?
The research found people struggled with financial questions about retirement. They really look forward to retirement - spending more time travelling, with families or on hobbies. Many are happy to continue to be economically active, maybe working for longer or volunteering or caring for family. They are attached, sometimes passionately, to their home and want to stay there for as long as possible.
They are aware they face risks, such as needing long-term care, but are unsure of the extent of these risks or the most effective way of managing them.
This led us to do some thinking. We want people to have a much clearer picture of their retirement. We want them to look forward to it but to be able to judge these important financial decisions, so they are able to assess their needs, risks and, therefore,choices.
We also need a new environment for retirement - taxation, public services, regulation, advice, and market - that fits this new picture of retirement.
To do this, we need a complete review of the way people take income from their assets in retirement or decumulate - a D-Day, if you like, similar to the A-Day review. This should help us create an environment to support people in making financial retirement decisions to achieve better outcomes.
We should use our knowledge about how people approach retirement. We should be finding ways to work with - but also to overcome - their natural biases, so they are able to visualise what they need in retirement, translate that into financial services solutions, and have the knowledge to access these solutions and the confidence to use them.
Government, regulators, advisers, third sector and providers all have a role to play. There is no single answer. We need to consider changing pension tax rules and improving the products and solutions that providers offer as well as thinking about widening access to advice and helping develop lifelong financial capability.
Tinkering around the edges will not achieve this. We need to pull together to completely review decumulation and so develop an improved environment to help people get a better retirement.
Rachel Vahey is head of pensions development at Aegon
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