The transition from saving to spending in retirement is often fraught with anxiety, uncertainty and fear of getting it wrong, a new report from the Standard Life Centre for the Future of Retirement has found.
The research, which examines the emotional and behavioural dynamics that affect the retirement decision-making process, found that people’s experience of decumulation are highly varied and deeply emotional.
While many value flexibility and control, others feel overwhelmed by complexity and jargon and find the process daunting.
External factors, like the rising cost of living and political uncertainty, means that decisions are often driven by a deep-seated need for security, even if this is not the best financial decision in the long-term. Meanwhile, emotional factors, from fear to boredom to loss aversion, strongly shape behaviour often leading to procrastination or piecemeal decisions.
The report found that those aged 55-70 are driving a new type of retirement, with their retirement not defined by a single event but by a prolonged period of complex decision making.
This creates a fundamental challenge for providers, trustees and the regulator and suggests that well-timed, more personalised support could make the biggest difference to individuals decision making at retirement, the Standard Life Centre for the Future of Retirement said. Advice, targeted support and guided retirement will need to accommodate diverse needs and fluctuating confidence levels.
Catherine Foot, director of the Standard Life Centre for the Future of Retirement, said: “How you decide to decumulate your pension pot is one of the most important decisions you will make about your money, but it’s incredibly challenging, and many people feel understandably anxious and ill-equipped.
“Our research shows that people want simplicity and certainty, but they also want control. The challenge and opportunity is for the financial services industry to provide more personalised, timely support that helps individuals navigate complexity without feeling locked in.
“As the Pensions Commission continues its work, and as the FCA works on new activities like targeted support and simplified advice, they will need to consider what interventions both in terms of free guidance, decision support and financial products could better serve people’s needs.”
Foot said there isn’t a single path nor a single decision that will set people on the ‘right’ course for their whole retirement.
“Instead, managing your money into and through retirement is more like a series of stepping stones. The ask from this pioneering generation of DC retirees is clear: they want and need practical, simple support that meets them where they are, financially, practically, and emotionally.
“They want support that acknowledges the messy reality of these fundamentally difficult decisions but that helps them cut through the fog and have more confidence in the decisions they are taking at each step on their journey,” she added.
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