Individuals now have the option to leave their pension pot intact until retirement or start accessing it from age 55; secure a guaranteed income with an annuity or employ flexible income options by remaining invested; take cash out in amounts to suit personal requirements or access their whole pension savings in one go. The freedoms also allow individuals to combine options.
Unsurprisingly, as a result of the new rules, the way retirees have accessed their pensions over the past five years has changed significantly. From April 2015 to July 2020, retirees have opted for pension withdrawals totalling almost £37bn. Somewhat surprisingly, considering the guaranteed lifetime income they provide, the take-up of annuities is also on the decline, with only 11% buying an annuity in 2018/2019 - down from 13% in 2016/2017.
Yet the market is in a very different place today compared to 2015, and there are a number of issues those planning for retirement need to take into consideration.
The impact of COVID-19 on stock markets is concerning for individuals whose pension savings are invested in them. The need to spread your investments across a range of asset classes to ensure they are properly diversified, with the aim to protect them from market volatility, is now key.
The amount of money required to fund a comfortable retirement continues to grow too, yet with interest rates sinking to an all-time low in 2020, the ability to secure such an income has become much harder. Low interest rates mean any savings invested in bank accounts are unlikely to provide returns that outpace inflation over the long term. And with most banks offering savers rates of less than 1.5%, cash savings do not offer much in terms of annual returns to retirees anyway.
Meanwhile, longevity risk - the risk of outliving your savings - is also a rising concern with the Office for National Statistics stating that improved healthcare and lifestyle changes are leading to more people living to 100.
Never has it been so important to analyse your own personal retirement plan and understand your options in order to secure your income for the future. For help choosing the right retirement game plan for your clients, and exclusive content to help navigate today's challenges, read the guide to retirement from Architas.