A report from the Department of Work and Pensions has revealed a number of problems and issues affecting retirement decision-making.
“The Annuity Bureau welcomes the DWP report’s main findings – they are consistent with what we have been saying for years,” says David Marlow, director, Alexander Forbes Annuity Bureau. “Let’s hope the report provides the catalyst for improvement in wake-up letters from ALL providers.”
The report, “Information Needs at Retirement: Qualitative Research Focusing on Annuitisation Decisions,” presents the findings from in-depth research on the decisions around retirement and pension fund annuitisation of individuals with defined-contribution (DC) pension funds who were either within a few months of retirement or who had recently taken out an annuity. The aim of the research was find out about the background, characteristics and attitudes of individuals, especially on their experiences and views of planning for retirement and the annuitisation process. In particular it focused on what levels of understanding people had about the choices they have for example around the use of the Open Market Option (OMO) and the role of information and advice in the decisions made.
The main findings are:
* The research revealed a number of problems and issues affecting retirement decision-making. These include a lack of awareness and misunderstandings around the annuitisation process, for example a common belief that using the Open Market Option would be complicated, time-consuming and not worth the effort. It also found complications introduced by annuitants personal circumstances, for example regarding tax or multiple pensions, and problems perceived to be due to providers, for example, lack of clear information;
* The main factors affecting the way in which participants coped with the annuitisation process were their degree of financial awareness and knowledge particularly about pensions and annuities, and their level of engagement with saving for retirement and the annuitisation process;
* Overall, awareness of the options to defer annuitisation and to take a cash lump sum was high, but awareness of the different types of annuity was lower, as was the level of understanding of how to exercise the Open Market Option and its potential advantages;
* For many of the less financially knowledgeable, the only source of information they recalled receiving about their annuitisation options was the printed information and letter from their pension provider setting out the background and decisions to be made, some four-six months before their expected retirement date (the so-called wake-up letter). Many perceived this as over-complex and providing too much information to take in.
* A range of other factors contributed to the decision-making process, including individuals personal circumstances, such as the existence of multiple pensions, and complex tax scenarios; and established attitudes and patterns of behaviour, including a mistrust of providers and advisers, or conversely, in some cases, a sense of loyalty to providers.
The full report is available on the DWP’s website.