Pension Freedom Day in the United Kingdom: Early evaluation of consumer response

Abstract

Understanding decumulation decisions in retirement is an important component of public policy that influences pension regulations in aging societies. This research examined a recent, substantial change to pension regulation in the United Kingdom: the newly established flexibility to obtain a lump‐sum payout from personal or occupational pension savings. Conducting an online survey of individual’s eligible to take advantage of the Pension Freedom regulation, we find that almost half of study participants plan to obtain a lump‐sum payout, on average £33,741, intending it for an average of three different investments or purchases. The decision to obtain a lump‐sum withdrawal was related to better knowledge of the new regulation. It was also more likely among older respondents and those not worried about a decline in standard of living during retirement. Dispositional measures did not affect the lump‐sum decision. Close to one‐third of study participants still planned to invest retirement savings into an annuity, especially those who retire at a later age, have concerns about care costs and worry about decline in standard of living in retirement. Comments about the changes to pension regulation were slightly more positive than negative. From our analysis of the effect of the Pension Freedom regulation on savings decumulation decisions, we conclude that the new Pension Freedom regulations do meet consumer demands, and demonstrate that pension knowledge and retirement expectations, in particular, influence consumer evaluations. We further conclude that annuity investments continue to play a role for older adults in the United Kingdom, especially for those concerned about meeting financial needs during retirement.

Which consumers are more likely to adopt a retirement app and how does it explain mobile technology‐enabled retirement engagement?

“…Academics, governments, and business practitioners are giving growing attention to initiatives aimed at encouraging individuals to increase their retirement engagement and make timely and informed decisions about (managing and accumulating) their retirement savings (Aegon, 2019; Atkinson et al., 2012). For example, Loibl et al., (2018) investigated consumer responses to regulatory changes implemented by the U.K. government, which seeks to encourage individuals to take greater responsibility in making pension‐related financial decisions. The authors find positive overall consumer sentiment, stating that little regulation around access to pension savings—and the increased freedom in decision making—motivated them to take out larger pension lump sums, highlighting that the larger the lump sum, the more likely the individual is to continue saving or investing the money.…”

Retirement concerns and financial literacy in Brunei

“…They contended that not only are preretirement investments potentially affected, but a lack of financial literacy would also affect post-retirement withdrawals and investments. An example of the post-retirement decisionmaking process in relation to financial literacy can be found in the United Kingdom; Loibl et al (2017) found financially literate respondents are likely to choose lump sum payout over annuities, as the financially literate are able to take into account complex annuity-linked considerations to make an effective decision.…”

Allowing early access to retirement savings: Lessons from Australia

“…Second, we extend beyond how citizens used their withdrawn funds to also understand how the decision to withdraw affected their financial circumstances. More broadly, we contribute to the literature on early retirement savings withdrawal policies (e.g., Agarwal et al, 2020 , Loibl et al, 2019 , Lorca, 2021 ), providing insight into how they can be better designed in the future.…”