Our latest research1 highlights that with the average life expectancy of a current 60-year-old in the UK being 86, some retirees are facing nearly a decade shortfall2 after spending their retirement savings windfall.
Behavioural experts suggest this could be down to ‘the lottery effect', where the psychological rush of having overnight access to large sums of money can spark impulsive or unsustainable spending.
Many people underestimate how long retirement lasts. The new reality is that retirement savings need to stretch across decades. Not only maintaining a lifestyle and covering the cost of essentials, but potential later-life care costs too.
With people generally living longer, it's important to map out a long-term savings plan that considers the full retirement journey and different options available. Tech solutions, with simple language, will be a key enabler in helping people to do this.
This is particularly pertinent as the shift from defined benefit (DB) to defined contribution (DC) pensions places more responsibility on individuals, to ensure they have sufficient retirement savings.
Need for support
Our research surveyed around 3,000 people over the age of 50 in the UK. One in seven (15%) felt the cash lump sum of their retirement savings was like an unexpected financial bonus, rather than considering it as part of their long-term savings plans.
From those who accessed cash from their retirement savings, 14% had regrets about doing so or spent more than they planned. Our research also highlighted that many didn't understand the impact of their decisions at the time and didn't seek guidance beforehand.
Our Guided Retirement Planner
This all points to a knowledge gap. We're helping to bridge this gap by developing new innovative solutions such as the Guided Retirement Planner.
The way people understand and engage with their retirement needs to be transformed so they can have better outcomes.
Pension savers are faced with many challenging decisions around their finances as they approach and navigate retirement. Our new planner can help people over 55 make more informed decisions, in a much easier way.
The digital journey uses advanced technology to personalise the experience in real-time. It responds to what we know and learn about the DC member as we help them understand their options, build a retirement plan, identify any shortfalls and take positive next steps.
It was created from extensive research and insights. The development process involved ideation sessions, rigorous testing with hundreds of our members, and feedback from clients and intermediaries.
The online journey unfolds in six simple steps:
- Setting lifestyle goals: Members identify what they value most for their retirement, helping us to personalise their experience and place them in a planning mindset.
- Understanding financial health: We help members build a holistic view of their finances, including pensions, savings, investments, and property – an increasingly key consideration as part of retirement planning.
- Setting income goals: Understanding what income is needed in retirement is often hard, so we give members a starting figure dependent on their salary that they can refine and adjust.
- Exploring retirement options: Members are guided through various retirement options using simple language, videos and visuals, supported by a 24/7 chat assistant, human web chat, our helpline and access to financial advice.
- Taking action to help meet goals: Based on their inputs, we create a retirement plan for the member, helping them to address any shortfalls with solutions like including part-time work in retirement, saving more, delaying their retirement or using their home to help fund their retirement. Once they are happy with their plan, we'll provide clear, actionable next steps. This can include consolidating their pensions, updating their details, taking advice and accessing their retirement savings.
- Adjusting the plan: Members can save, exit and return to their plan at any time, with ongoing personalised nudges to keep them engaged and help them stay on track.
By knitting together all finances to build a fully rounded view, the Guided Retirement Planner encourages members to review potential shortfalls in income. These factors, underpinned by regulated guidance in future years, aim to ensure better retirement outcomes for DC savers whether in their early retirement or later years.
This initiative is part of our broader strategy to leverage member-centred technology, guidance and advice to better engage individuals, transforming the retirement landscape for UK savers and our 5.4 million DC workplace members.
Key Risks
The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount
invested. Past performance is not a guide to future performance.
The details contained here are for information purposes only and do not constitute investment advice or a recommendation or offer to buy or sell any security. The information above is provided on a general basis and does not take into account any individual investor's circumstances. Any views expressed are those of LGIM as at the date of publication. Not for distribution to any person resident in any jurisdiction where such distribution would be contrary to local law or regulation. Please refer to the fund offering documents which can be found at https://fundcentres.lgim.com/
This financial promotion is issued by Legal & General Investment Management Ltd. Registered in England and Wales No. 02091894. Registered office: One Coleman Street, London EC2R 5AA. Authorised and regulated by the Financial Conduct Authority.
[1] Research conducted, on behalf of Legal & General, by Opinium between 3rd-9th December 2024, among 3,000 UK over 50s. Visit the newsroom to read our research press release.
[2] Calculations are based on the following assumptions:
· Inflation = 2.5% p.a.
· Expected life expectancies from Office of National Statistics calculator: Life expectancy calculator - Office for National Statistics
· Investment return on pension pot calculated based on CAPA average portfolio one day before state pension age (as at 31 December 2023), with 33% held in equities (5.5% p.a.)
