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Article | Pensions Briefing

How to support members as they approach retirement

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By Gemma Burrows | June 11, 2020

Navigating the retirement process has become more challenging and complex than ever before and it is evident that people need more support to ensure they get the most out of their saved contributions. Our latest article gives more insight into those areas of focus and how Retire Able can provide the support needed.

Over the last decade or so, the process of retiring has changed markedly. These changes have meant greater flexibility for people planning for their retirement, whether that’s stopping work entirely, reducing hours, moving to a lower paid role or even choosing to fulfil a lifelong passion or interest through a second career. These choices have been matched by greater flexibility in how people can access their retirement savings; whether that’s taking a guaranteed income, withdrawing it as a one-off cash lump sum or series of lump sums, or investing in a drawdown arrangement and withdrawing it as and when they want to. With all this flexibility has come increased complexity and this presents a very real challenge for those starting to plan their journey towards retirement.

It is evident that the ability to take income flexibly through a drawdown arrangement appeals to many people, with the Financial Conduct Authority (FCA) finding that twice as many defined contribution (DC) accounts move into drawdown than annuity. However, projecting retirement income needs and how to meet those needs is less than straightforward.

A recent ABI (Association of British Insurers) report found that 40% of people were at risk of exhausting their funds by making withdrawals at an unsustainable level, it has also been reported by Age UK that around 30,000 individuals using drawdown were inappropriately invested in cash.

Where individuals are taking the decision to manage their pension income themselves, understanding the relationship between expected returns and risk for a retirement savings account that is still essentially a long-term investment are key to ensuring sustainability.

For those that want the stability of a guaranteed income, annuities continue to be a logical option. However even this comes with complexities, not only in selecting the type of income required, but also where to get that income from. Despite the various measures put in place to encourage people to shop around for annuities, the Retirement Outcome Review suggested that people were losing 13% of their potential income by not shopping around.

These complexities aren’t only faced by those with DC accounts, as we continue to see people with defined benefits (DB) transferring to a DC arrangement in order to access the flexibilities.

It is clear that now more than ever, people need access to support, guidance and potentially advice to make the right decisions. Implementing an effective ‘at retirement’ roadmap is the final piece to ensuring that the significant contributions saved by employers and employees during the savings phase, deliver value and adequacy for employees at the point of access.

An effective ‘at retirement’ roadmap is the final piece to ensuring that the contributions saved deliver value and adequacy for employees at the point of access.”

Gemma Burrows
Director, Retirement

So how does an employer or plan sponsor support this final piece of the jigsaw? The first step is to understand what support is currently in place. The breadth and quality of support from pension providers, trustees and administrators varies considerably. Encouraging members to take a holistic view of their likely income, whether that’s derived from DB, DC or a combination of the two is fundamental. But this can only be achieved through providing access to whole of market annuity broking, and the ability for individuals to easily access guidance or advice based on the complexity of their needs. With the increase in popularity of taking income flexibly, considering how to facilitate access to income drawdown either through the plan, or alongside it, can also help ensure members get access to good value, well-governed solutions to ensure they can effectively manage their income needs over the longer term. A simple solution for the many arrangements that aren’t able to cater for this ‘in plan’ is to facilitate access to a master trust that provides a drawdown facility, ensuring members avoid having to access costly SIPP arrangements on the individual market, which are often costly and complex.

We understand that with varying degrees of support already in place, there will be different gaps to plug and different areas to prioritise. That’s why we’ve built a modular proposition, that supports members with both DB and DC in the lead up to, and through retirement. It can help members to understand the options they have, be able to access guidance and advice if appropriate, ‘shop around’ to ensure they get the best from their hard-earned savings and can manage their income in a sustainable way if they choose to take flexible withdrawals.

If you would like to speak with us to understand how our Retire Able service can support you, and your employees, please contact Anne Jones or your Willis Towers Watson consultant.

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