Fear of outliving savings may be leading to unnecessarily frugal retirements and reduced quality of life.
The current range of retirement income products falls short of meeting retirees’ complex needs.
Most advisers (75%) say decumulation product innovation is important to addressing retirement challenges.
With shifting demographics, longer lifespans, and growing pressure on individuals to generate sustainable income from defined contribution (DC) savings, retirees are navigating a complex new landscape.
In our inaugural UK Retirement Study, we identified three interconnected themes shaping the experience of modern retirees: Retirees’ fear of running out of money, their frustration with the limitations of current retirement solutions, and a growing desire for innovation that offers both flexibility and security. These findings underscore the pressing need for retirement strategies that are better aligned with real-life spending patterns and preferences.
To better understand the evolving retirement income landscape in the DC era, we recently launched our first UK Retirement Study. Conducted in partnership with NMG Consulting, our research combines insights from consumers at various stages of retirement, financial advisers specializing in retirement planning, and senior industry experts.
The study provides valuable perspectives on the challenges retirees face and the role industry stakeholders can play in addressing them. The findings are particularly relevant for financial advisers, DC pension and master trust providers, and consultants, offering data-driven insights to help shape better retirement outcomes.
Most people retiring today must convert a DC pension pot into a sustainable income stream. But few are prepared for what that really entails. According to the study, 48% of advisors say their clients’ number one concern about retirement is the fear of running out of money. This fear drives behaviours that can significantly undermine financial well-being.
In fact, 59% of recent retirees report spending comfortably within or even below their means. The top reasons for this include:
This cautious approach is understandable, but it’s often unnecessary and leads to a lower quality of life.
The current tools for creating income security in retirement, however, are falling short. Just 10% of advisers say they are very satisfied with today’s retirement income products, while 38% are neutral, suggesting broad disengagement or uncertainty. The current toolkit was built for a different era — one focused on accumulation, not decumulation.
Source: Invesco UK Retirement Study, 2024.
There is growing urgency across all industry stakeholders to deliver better outcomes. Three-quarters (75%) of advisers say product innovation is important to addressing retirement challenges, with 61% citing sustainable income generation and 56% pointing to longevity protection as a top priority.
Yet innovation has been slow. While hybrid solutions, which combine elements of drawdown accounts and annuities, are gaining attention, just 4% of advisers use them frequently today, and 66% expect to use them more in the next five years. Advisers are looking for tools that blend security and flexibility, but current offerings are often seen as too complex, too rigid, or not well tailored to individual needs.
Source: Invesco UK Retirement Study, 2024.
One theme comes through loud and clear: Retirees want protection in the early years of retirement when poor market returns can cause lasting damage. At the same time, they also want the ability to adjust to changing needs and market conditions.
The most common barriers to the adoption of new retirement income products are complexity, concerns about suitability, and regulatory constraints. These hurdles speak to a disconnect between what retirees need and what they’re being offered.
Successful innovation must address both design and delivery, making products easier to understand, adopt, and trust. That means offering clear outcomes over technical features, built-in flexibility, and design choices that support both advised and non-advised retirees alike.
Source: Invesco UK Retirement Study, 2024.
DC savers are being asked to make hard decisions with limited help and few fit-for-purpose tools. Product providers, platforms, and policymakers all have a role to play in creating solutions that deliver drawdown security without sacrificing flexibility. They are faced with the difficult task of building products that are simple to explain, easy to adopt, and robust enough to weather life’s unknowns. Indeed, the next era of retirement income must be built for the way people actually live in retirement.
To explore these insights further, please download the full UK Retirement Study 2024 and visit our retirement solutions insights page.
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