People with investments have long been misunderstood when it comes to their financial literacy. Yes, they can manage their bills, navigate mortgages, and save for vacations and other big-ticket items with relative confidence. But a troubling gulf exists when it comes to retirement literacy. Many are unclear about how to transition from working life to retirement, particularly regarding their retirement savings and the options available to them.
A significant factor contributing to this disconnect is the complexity surrounding retirement income options. While most understand the basics of retirement saving – including their employer contributing a portion of their salary – they often lack the necessary understanding of what this means for their retirement lifestyle. Questions about how to access their pot, the interplay between the state-provided pension and their own retirement plan payouts, and the tax implications of these withdrawals often go unanswered. Without a financial adviser to assist, this lack of knowledge can lead to poor financial decisions, ultimately affecting their quality of life in retirement.
Providers are increasingly recognising this challenge and we are seeing strategies to enhance engagement and education around retirement. A life-stages approach to communication is one effective method. By reaching out to investors at various points in their lives and providing tailored information, organisations can nurture a deeper understanding of retirement planning.
The role of personalised support cannot be overstated, people need to talk to people. Research indicates that many individuals crave help when navigating the complexities of retirement income. Receiving one-on-one advice is invaluable for those facing the daunting “big questions” of retirement – such as how much they need to live comfortably and what options are available for drawing on their retirement pot. But many can’t afford fully-fledged advice, and this advice gap includes people who don’t trust the advice profession.
Then there is the added challenge for providers to consider the regulatory boundary between guidance and advice. By providing general guidance, organisations can foster an environment where individuals – whether scheme members or not – feel empowered to understand and better engage with their retirement options. For those needing a greater level of personalised advice, this can be serviced via an adviser team.
There is also a question around whether there are sufficient products currently available in the market meeting the diverse needs of retirees? While contributory pensions exist, and retirees can opt for flexible drawdown payments and/or an annuity for guaranteed income, there is a perception that the complexity is overwhelming, and costs can be prohibitive. Those saving for later life need further clarity when it comes to retirement income products to feel confident in their choices.
Accordingly, while people appear to be financially literate, there is an urgent need to bridge this gap in retirement literacy. Fostering engagement through personalised education and simplifying retirement products can help ensure that individuals not only understand their finances but can also confidently navigate the transition to retirement and secure a quality of life that allows them to thrive as retirees.
Technology can play a pivotal role in this. By leveraging digital tools such as retirement calculators, advice solutions, and modern wealth management technology, investors can have access to tailored information that helps to streamline the process of understanding retirement options, and facilitate ongoing engagement, enabling individuals to explore their unique needs and make informed decisions. As we embrace these innovations, we can empower more people to take control of their retirement planning, ensuring a smoother transition into a fulfilling and financially secure retirement.
Download the full whitepaper here that explores retirement literacy – Managing the retirement income challenge: A global perspective.
Posted in: Advice solutions, Wealth Management Administration
