Great Expectations

Are people’s retirement income expectations adequate and achievable?

With daily worsening news about the rising cost of living, coupled with rising rates of people leaving the labour market post-pandemic, the need for people to plan for their current and future financial security has never been more important. Worrying new research out today shows that very often people face a serious mismatch between what they say their retirement expectations are and what their modelled future reality is likely to be.

Phoenix Insights is a think tank set up by Phoenix Group to transform the way society responds to the possibilities of longer lives. In its latest report, Great Expectations, Phoenix Insights commissioned Frontier Economics to assess whether people’s retirement income expectations are adequate and achievable.

For different reasons, there are causes for concern, about the majority of savers in Defined Contribution pension schemes. Phoenix Insights calls on government, the pensions industry, regulators, and employers to work together to tackle the challenges ahead.

The majority of savers have reason for concern

Can working for longer or saving more help people get on track?

Especially considering the increase in cost of living, working longer and increasing saving rates will not be enough or realistic to get everyone on track for the retirement income they expect.

If everyone worked until they were 68 and saved 12% of their earnings, more would be on track to reach the retirement income they expect, but this would be predominantly among people who are already middle and higher earners.

Even if people wanted to, delaying retirement, and working for longer may not be possible for everyone, since:

Nearly 4 in 10 people are worried about working for longer because of their physical health, and 2 in 10 due to their mental health.

1 in 4 people worry about discrimination in the workplace for older workers, and 1 in 4 worry about being unable to find a new job if needed

Nearly 1 in 4 worry about a lack of motivation in working for longer.

Phoenix Insights emphasises that we need to create an environment where people are not forced to work for longer because they must, but have opportunities to be in better, more sustainable work that is fulfilling and meets their needs. While many people may benefit from greater understanding and awareness of what a realistic retirement income target might be for them, and better support to get on track, for those facing financial insecurity across their lives greater support and an adequate safety net will be needed.

Phoenix Insights calls on government, the pensions industry, regulators, and employers to work together to tackle the challenges ahead

There is extensive debate about financial wellbeing in later life and how to ensure people are adequately prepared. The report has shown that understanding people’s expectations, and whether and how they can get to the retirement they want, is important. Future policies must consider the fact that for many there seems to be a mismatch between their expectations and likely reality. Phoenix Insights recommends tackling the challenges ahead by calling on:

Government, the pensions industry, regulators, employers and charities to engage people much more effectively in their future finances.

Improving how we engage people using tools such as the Pensions Dashboard which will help people keep track of their total accumulated savings.

Government and employers to make working for longer more feasible, attractive and rewarding.

Boosting opportunities to upskill and retrain, allowing for greater and more varied career progression that provides meaning and purpose as well as improving retirement security.

The pensions industry and employers to encourage saving for those who can afford to through more flexible provisions

Targeting those who can afford to do so, giving greater flexibility for people to switch between periods of working and not working.

Government to create a safety net of support for those unable to work longer or save more.

Improving the uptake of Pension Credit, particularly for those who struggle to make ends meet throughout their working lives.

All of us to recognise that financial preparedness is about more than just pensions and savings.

Increase understanding of how people’s wider support networks, partners, families and other potential sources of income all interact with financial security in retirement.

Phoenix Insights has called for this support to be funded through a reinvestment of savings to public spending arising from any increases to the state pension age. The last state pension age rise from 65 to 66, led to a saving to the Treasury of nearly £5 billion. Redistributing 10–20% of those savings could provide an intergenerationally fair solution to support longer working lives and cushion the impact on those most negatively impacted by an increase to their state pension age. (Phoenix Insights 2022, Reaching a certain age: Public attitudes to the state pension)

There is an important role for both government and employers here: in supporting reskilling, upskilling and labour market mobility at all stages of life; and in ensuring that employment policies are age-inclusive, tackle age bias in recruitment and hiring, enable flexible working and support staff with caring responsibilities.

The full report can be found here.