With the cost of living remaining a constant worry for many, it's no surprise that consumer optimism surrounding future pension prospects has declined. This blog examines the decline in consumer confidence regarding retirement backed by the latest industry stats. It explores how financial planning and the technology surrounding it can help, offering a more optimistic and empowered retirement planning consumer experience.
Recent findings by PensionBee1 unveiled a disheartening reality regarding consumer retirement confidence.
33% of UK consumers are less optimistic about their retirement in 2023 than the previous year.
Age and gender disparities also reveal intriguing nuances in these concerns.
For those over 55, 34% expressed a gloomier outlook, attributing it to concerns about inflation affecting living standards, regret about insufficient savings, and diminishing trust in the state pension. Time will tell if the recent announcement of an 8.5% increase to the state pension as part of the UK Chancellor Jeremy Hunt’s Autumn Statement improves sentiment.
Meanwhile, 32% of those under 55 share a similar view, citing worries about potential retirement costs and the need for a larger pension pot. And even more concerning, 51% of under-55s were even gloomier about their pension outlook, with optimism dropping from 58% in the 18-24 age group to a mere 21% in the 25-54 age group.
Examining the gender pension optimism gap, males prove to be "more positive" (19%) about their retirement prospects than females, with 8% feeling "less positive." Another finding is that females nearing retirement are markedly more negative (21%) about their pensions than males of the same age (15%).
Understanding consumer sentiment around retirement is vital to improving their financial situation and future retirement prospects. Identifying factors that shape their financial decisions, recognising the things that boost their confidence, and determining how the industry can provide appropriate technology to support advisers are all key considerations in ensuring the best financial outcomes.
As per the Nucleus UK Retirement Confidence Index2, retirement confidence tends to decrease over time due to stretched household budgets and the widespread impact of the cost-of-living crisis. Additionally, there is an advice gap, with only a small percentage of consumers regularly seeking regulated financial advice.
The report revealed that 66% of respondents expressed confidence in having enough money for a comfortable retirement. However, concerns arise, especially among those without advice.
An intriguing discovery is the significant role financial planning plays in boosting consumer confidence. While 51% claim to have a detailed retirement plan, only 20% have it in writing, which does not dampen their high confidence levels.
On the other hand, among those with a plan, 49% are notably less confident about having enough money to last a lifetime. Furthermore, the impact of advice on confidence levels is minimal, as advised customers show only marginal improvements over those who have never sought advice.
All told, this underpins the importance of financial planning, presenting an opportunity to engage consumers earlier in the retirement planning process. What are the options you may say? Self-serve guidance in the workplace is a ready and waiting opportunity, allowing consumers to transition into regulated advice digitally, traditionally, or through a hybrid approach.
In all of this, financial planning technology becomes a critical component.
Financial planning technology can be a game-changer, offering tools and resources to empower individuals in understanding, managing, and planning for retirement, whether advised or non-advised. Here’s how it can contribute to helping increase consumer pension optimism.
Technology provides personalised retirement projections by considering a person's financial situation, including savings, investments, debts, and future goals. This enables individuals to gauge if they are on the right track and make necessary adjustments to their plans.
Post-2015's Pension Freedoms, individuals gained greater flexibility and shouldered much more responsibility for their future retirement plans than ever before. Financial planning technology helps simplify complexities and, as a result, engages and empowers users. Digital tools offer insights into future retirement plans, guiding users toward financial success and informed decisions.
Financial planning technology is a source of financial education, offering information about risk, capacity for loss, investment strategies, the impact of inflation, and the importance of contributing more to retirement pension pots. This educational aspect encourages confidence in users, enabling them to make well-informed decisions.
Simulating various life and financial events allows users to visualise the impact of early or delayed retirement decisions, affordability, and other financial stress tests. This contrasts with traditional financial guidance, often laden with jargon, by providing a clear, user-friendly interface that builds confidence and optimism in retirement planning.
In the face of declining consumer optimism about retirement, the statistics paint a bleak picture of concerns and disparities across age and gender demographics. The challenges are multifaceted, ranging from worries about inflation to a lack of trust in pension systems. However, amid these challenges, a solution emerges: financial planning technology.
It can be a game-changer, offering a powerful way to improve consumer pension optimism through innovative, user-friendly financial planning tools. By incorporating personalisation, enhancing engagement, providing educational content, and simulating future scenarios, financial planning technology makes retirement planning accessible, engaging, and tailored to individual needs.
With increased engagement, users can navigate post-pension freedom responsibilities much easier, while educational content builds confidence. Moreover, by presenting different future scenarios and offering clear visualisations, technology delivers a user-friendly solution that encourages optimism and confidence in the retirement planning journey.
1 https://www.pensionbee.com/next-generation-of-retirees-report
2 https://nucleusfinancial.com/confidence-index