The overwhelming majority of DC savers are uncertain how they intend to use their pension savings, with 57 per cent saying they don’t want to decide what to do until shortly before or just after retirement.
The survey of 1,000 DC pension savers aged over 40 years old, carried out for AllianceBernstein, found that 78 per cent have not decided how they plan to use their pension pot once it becomes available to them.
Of the minority that had decided, 41 per cent want to keep it invested in a pension, 23 per cent plan to put it into savings outside of a pension, 18 per cent plan to buy an annuity and 14 per cent intend to spend it on purchases or pay off debt.
Ipsos Mori research commissioned by Hargreaves Lansdown published yesterday showed 12 per cent of investors with a DC pension will take their entire pension in one go, suggesting 200,000 would access their pensions from April.
The AllianceBernstein survey also found that only 9 per cent of those approaching retirement, between 55 to 64 years old, know the exact day they plan to access their pension, with 79 per cent narrowing it to a year or within a few years. The poll found 78 per cent said it is important that their pension investment strategy reflects this uncertainty around their retirement date. It also found 87 per cent said it was important that their pension investment gives them flexibility to decide how to use their savings.
The data shows men expect to eventually retire with a total DC pension pot of around £150,000 while women expect around £100,000. Most members have 2 or 3 pension pots, and 52 per cent say that DC pensions will be their main source of income in retirement.
While 98 per cent of respondents aged 55 and over are aware of the pension changes proposed in the March 2014 Budget, only 43 per cent had yet considered how the changes would impact them.
PPI director Chris Curry says: “The survey highlights the high levels of uncertainty amongst DC savers about when they might retire and how they might choose to access their pension savings. The overwhelming majority of savers under automatic enrolment are expected to be saving in the default fund, and as a result of recent Budget and tax reforms much lower numbers are now expected to take an annuity at the start of their retirement. This presents a significant challenge to trustees and providers when reviewing their default funds. Engaging savers in the UK with decisions around pensions has always been a challenge, and these latest findings suggest that, even if savers could be engaged, they are unlikely to be in a position to take any clear decisions until very close to, or even after, retirement, and so flexibility is key.”
AllianceBernstein pension strategies group, head of client relations Tim Banks says: “Our survey of DC savers approaching retirement challenges some established industry assumptions. With millions of new members now saving into DC schemes and over 80 per cent invested in default funds it is important that these strategies are in the members’ best interest and meet the requirements of today’s working environment.”
AllianceBernstein head of pension strategy David Hutchins says: “These results highlight the importance of a pension investments strategy taking into account a numbers of uncertainties in members’ lives and not rushing them into making binding decisions that they are insufficiently prepared for,
“We believe modern pension strategies require pro-active investment management, robust governance focusing on members’ interests and the flexibility to fit around today’s working life.”