Downhill all the way? What should pension schemes assume about pensioner spending through retirement?
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LCP and the University of Bath have analysed data on the spending patterns of over 100,000 pensioners collected over more than half a century.
The UK pension system is in transition.
Past generations of workers could look forward to a regular income in retirement, from a combination of a state pension, occupational pensions and/or a fixed income from an annuity.
But the majority of the working age population faces a different picture.
The closure of most private sector Defined Benefit (DB) pension schemes, and the process of automatically enrolling around 10 million more savers into (mostly) Defined Contribution (DC) arrangements, means most workers in future will reach retirement with a state pension and a DC pot. These savers will need to work out how to manage that DC pot to support themselves for an unknown number of years, and to deal with uncertainties around investment returns, inflation rates and changes in their own personal and household circumstances.
Against this backdrop, the Government is planning to legislate to require pension schemes and providers to establish ‘default’ post-retirement journeys, essentially guiding the profile of post-retirement drawdown for those who do not actively engage or who are happy to be guided by their provider.
The purpose of this report is to see what we can learn from the spending profiles of pensioners, in terms of how they choose to spend their money in retirement to inform the design of those default journeys.
