Later life industry advocates for 'mid-retirement MOT'

Only half (48%) of retirees are confident they are on track to make their private pension savings last for life, new research from Aviva and Age UK shows. 

Just over a quarter (26%) reported feeling financially secure, with women (19%) feeling less financially secure than men (32%). The research surveyed 1,000 mid-retirees aged 65-75 who have a private pension and are on a moderate retirement income, and do not pay for financial advice or have a final salary pension over £20,000 per year.

The majority (83%) said an income for life from their private pension savings has become more important to them as they get older, and the same number said they would be worried if their retirement income fell - with women more likely to feel this way than men (87% compared to 79%).

The report found nearly two thirds (64%) think a private pension should provide an income for life rather than functioning as a flexible savings account. However, a similar number (65%) think there is not enough support for people managing their financial needs as they age. The findings highlight a pressing need for regular financial reviews within retirement – and not just in the lead up to or at retirement. 

Aviva and Age UK are now advocating for the introduction of a mid-retirement MOT. 

A mid-retirement MOT could offer pensioners guidance and support while they are in retirement and would act as a financial and lifestyle review that could include a conversation about estate planning, fraud protection, access to state benefits, and managing finances if they start to experience cognitive decline. 

The report also recommends that innovative ‘flex first, fix later’ retirement income solutions - blended approaches that combine pension drawdown strategies with a later-life annuity – should become the norm. The research finds these have the potential to deliver better outcomes for people approaching the later part of their life, safeguarding people against major difficulties that may lie ahead for some.

Exclusive modelling for the report by the Pensions Policy Institute (PPI) shows those mid-retirees over 75-years-old who are withdrawing from a £100,000 pension pot at a rate of more than 7% are at significant risk of depleting pension pots prematurely, with a 10% withdrawal rate expected to exhaust pension pots in 13 years. For example, a 75-year-old couple with a pension savings pot worth £100,000 who withdraw from it at a rate of 10% have a 75% chance that the money will run out while one of them is still alive. 

Doug Brown, CEO of insurance, wealth and retirement at Aviva, said: “Pensioners today clearly value financial security, but many seem to be sleepwalking into later retirement with a ‘set and forget’ approach to their retirement income. They are among the first retirees getting to grips with the complex decisions that come with pension freedoms and need more support to make choices that will work for the whole of their retirement years.

“Choosing to withdraw a private pension at a rate of more than 7% from the age of 75 requires strict financial discipline to make that money last. There is a real danger that without the right advice and guidance in place, pension pots will run out too soon. 

“We want to help savers get ready for better retirements by ensuring pension savings last a lifetime. There is a realistic chance that future pensioners will be managing money into their 90s and beyond, facing major challenges that could include the cognitive decline that often comes with age. That’s why we are working with Age UK to consider the feasibility of a mid-retirement MOT pilot to help us understand how the industry can better support people to manage their money for a secure, fulfilling later life.” 

Paul Farmer, Age UK’s CEO, commented: “We frequently hear from struggling pensioners, many of whom have a small private pension of their own, about how tough they have found the last few years. Managing your pension and other finances becomes harder as you get older – especially where people have suffered a major life-change like a bereavement or a dementia diagnosis – and so it’s of vital importance that the industry, charities, Government and others can all work together to help people at this crucial point in their lives. The mid-70s is often a point where people need to take stock and think through their options. We hope this fascinating research project lays the foundations for further support and look forward to exploring the delivery of a pilot programme together.”

Jim Boyd, CEO of the Equity Release Council, added: “For some people, retirement can last twenty or even thirty years so it is naïve to think that they will have exactly the same financial needs and spending patterns throughout. The idea of a mid-retirement MOT is an excellent one as not only will it allow people to reset their financial objectives but also consider whether assets such as housing wealth might have a role to play.

“Over half (51%) of households are expected to require housing wealth to support their spending needs in later life and retirement by 2040 according to new modelling from Fairer Finance. Integrating a mid-retirement MOT into people’s approach to retirement will be vital to ensuring that retirees receive the support and advice they need to make smart sustainable choices which allow them to enjoy the standard of living that they want.”