Frontier Economics was commissioned by Phoenix Insights to work in collaboration to conduct analysis on financial security in retirement, which formed the basis of their report ‘Great Expectations: Are people’s retirement income expectations adequate and achievable?’.
Finding the facts
We used the Longer Lives Index data based on approximately 16,500 people aged over 25 who are not yet retired, to explore the adequacy and achievability of their retirement income expectations. This represents a population of 41.7 million people in the UK.
The analysis highlights that there is reason to be concerned about the vast majority of those who are not currently contributing to a final salary pension scheme. This concern arises for different reasons:
- The ‘Financially Struggling’ group expect a lower income in retirement than is thought necessary for a minimum standard of living. (4.6 million - 15%).
- The ‘Undersavers’ expect a higher level of retirement income but based on our modelling of their wealth and future saving, are not on track to achieve that. (12.4 million - 40%).
- The ’Downgraders’ are on track for the retirement income they expect, but they expect it to leave them with a fall in their living standards in retirement. (3.7 million - 12%).
- The ‘Unsure’ are not able to say how much income they expect to live on in retirement, which may suggest they will be disadvantaged by not engaging with their retirement preparation enough. (5.8 million - 19%).
- The ‘Happily On Track’. (4.3 million - 14%).
Figure 1: Summary of groups of concern
Source: Phoenix Insights: Great Expectations: Are people’s retirement income expectations adequate and achievable?
The analysis also explored the extent to which changes in behaviour could help people prepare for retirement better. Our modelling showed that working longer and increasing saving rates would improve retirement outcomes, but not get everyone on track for the retirement income they expect. For example, only 2 in 5 of those not on track for the income they expect would be brought on track by working until 68 and saving 12% of their salary in a pension. Many others would need substantial increases in savings rate to over 20% in order to meet their retirement income expectations.
Expectations and reality
Understanding people’s expectations, and whether and how they can get to the retirement they want, is important for effective policy design. If people are not on track for the retirement income they expect then they will need to change either their behaviour (their level of saving or their planned retirement age) or, perhaps in many cases, their expectations. The earlier people are aware and able to make any necessary changes, the more options they will have and the less painful the adjustments needed are likely to be.
Phoenix Insights will be hosting a webinar on Tuesday 20th September to debate the findings and implications. Rowena Crawford, Consultant at Frontier Economics, will present our findings. You can register here.
You can view the full report here.
Frontier regularly works on issues related to financial services and public policy.
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