It’s keep calm and carry on for ‘generation cautious’ as first days of reforms play out

Paul Darlow, actuary at Xafinity
Paul Darlow, actuary at Xafinity

New research has revealed that the 55 and overs are not all risk-taking baby boomers but are in fact becoming ‘Generation Cautious.’

While the global spending power of those aged 60 and above is forecast to reach $15tn by 2020, the reality of an ageing population has begun to set in and many entering retirement are treading with caution.

Tens of thousands of people telephoned customer service helplines on Tuesday after a quiet Easter Monday armed with their post-bank holiday weekend questions about the Government’s flagship pension reforms which for the first time allow unlimited withdrawals.

Some pension firms reported a surge of inquiries as savers took to the phone, with Prudential, Old Mutual and Fidelity all reporting double the number of inquiries compared to an ordinary Tuesday in early April.

By the end of the day, Scottish Widows said it fielded more than 3,000 calls, up from 440 on Easter Monday.

However, large amounts of inquiries were about how to treat pension funds as “bank accounts” in retirement rather than cashing in the whole pot.

The cautious approach supports the reulsts of a YouGov survey published today and commissioned by Anchor, the largest not-for-profit provider of housing for the over 55s south of the border.

It revealed that just one in ten adults aged 55 and over headed for retirement are likely to cash in their pension pots early.

The survey found that sixty percent of adults aged 55 and over were not at all likely to withdraw any money from their pension pot in the next 12 months, while 39 per cent of those who aren’t yet retired said they were not at all likely to take the whole of their pension pot as a cash lump sum before they retire. In fact, this generation is so wary of overspending, that 16 per cent of over 55s surveyed said they don’t plan to retire at all.

Jane Ashcroft, chief executive of Anchor said: “The results tell an interesting story of restraint and caution as people head towards retirement. Increasing life expectancies are good news but mean people are having to plan carefully to ensure happy living for the years ahead. While older people as a group may have significant wealth, there are enormous variations within this. Longer lives mean many are wary of being too frivolous at a younger age.”

The survey showed that of the 17 per cent of Britons aged 55 and over who were likely to dip into their pension pots in the next 12 months, almost half (43 per cent) plan to spend money on holidays or by going travelling whereas a third will spend it on refurbishing their current home.

Further down on the list of priorities were extravagances such as new cars and celebrations.

A conservative 13 per cent have hopes of buying a new car and just six per cent plan to throw a party.

High on the list however, was helping children or grandchildren move on or up the property ladder, with 15 per cent of those who are likely to spend money from their pension pots in the next 12 months making this one of their priorities.

Caution and security seem to be the key drivers, according to the survey. From the 26 per cent of those who haven’t yet retired aged 55 and over likely to move home in their retirement, 23 per cent said the most important factor in their choice would be to live somewhere they feel safe and a further 21 per cent will move to be closer to their family.

The survey’s results seem to be borne out by the lack of a rush to empty pension pots in the first days after the new rules came into effect.

Most pension providers said savers wanted to know how make withdrawals from their pensions without cashing in the entire fund.

Eight in 10 callers to Hargreaves Lansdown were more interested in taking their funds in several portions than all at once and a spokesman for Old Mutual said that those who did ask about withdrawing the entirety were often less keen after being warned that they faced a large tax bill.

Meanwhile, those looking to drawdown their pensions piecemeal were reporting resistance from pension firms.

A survey by Xafinity - a pension consultancy - has suggested that only 5 per cent of providers were planning to allow “full flexibility”.

Paul Darlow, an actuary with Xafinity, said this was because of the extra costs involved with working out tax liabilities.

“Deducting and paying tax is not straightforward; most systems are not designed to do that,” he said.

However, pension companies are obliged to allow savers to transfer to other schemes, if they cannot facilitate it themselves.

The Association of British Insurers (ABI) said transferring would be the best option for many.

“Customers can access flexible pension options but may need to transfer first,” said a spokesperson for the ABI.