You are here

Defined Contribution Pensions

This policy briefing is part of the IFoA’s DC pensions campaign focusing on adequacy and longevity risk. It considers what factors can help minimise the risk of consumers’ pensions running out during retirement.

Can we help consumers avoid running out of money in retirement?

What you will get from this report:

Our report, Can we help consumers avoid running out of money in retirement?, explores what rate of drawdown is likely to be sustainable and compares this against full annuitisation, and then combinations of drawdown and annuitisation. It addresses and answers the following questions:

  • What are the most important factors to consider in order to minimise the risk of consumers’ pensions running out during retirement?
  • How could a combination of drawdown and annuitisation affect consumer outcomes?

Insight

Consumers are increasingly accessing their DC pension pots, opting for drawdown products rather than annuities, and an increasingly large number of those consumers are purchasing drawdown products without regulated financial advice. As drawdown products do not offer a guarantee, it increases the risk of consumers running out of money in retirement.

Results

What are the most important factors to consider?

The two main factors to help provide a sustainable income are the age consumers start drawdown and the rate they withdrew their savings.

  • A consumer who enters drawdown at age 65 has a high likelihood of generating sustainable income if they withdraw 3.5% per annum, or equivalent to £3,500 from a £100,000 pot.
  • Comparatively, a consumer at age 65 could expect to receive around 4.5-5.5% of their pot per annum from an annuity as the annuity provider can pool risk among its consumers. This would be equivalent to £4,500 or £5,500 per annum.
  • If an individual starts drawdown at age 55, then the sustainable level of annual income reduces from 3.5 - 3.0%, or equivalent to £3,000 from £3,500.
  • The investment strategy of a consumers’ pension will affect their income sustainability and the range of outcomes. The difference between a balanced and either a cautious or  adventurous investment strategy could be equivalent to 4 years’ worth income.

How combining drawdown and annuitisation could affect consumer outcomes?

A combination of annuities and drawdown enables consumers to balance flexible access vs guaranteed incomes. It can also lead to higher overall income.

  • 9 out of 10 consumers taking £3,500 per annum via drawdown from age 65 to 75 could then expect to be able to buy a level annuity of more than £3,500 per annum at age 75.

When deciding what combination of drawdown and annuitisation would be best meet their circumstances consumers need to consider a range of questions including:

  • How much risk would I like to take?
  • What is my current health status?
  • How much income do I need in retirement?

Contact Details

For further information on any of our public affairs or policy work please contact us on:

policy@actuaries.org.uk

Related documents

Filter or search events

Start date
E.g., 20/06/2019
End date
E.g., 20/06/2019

Events calendar

  • Risk and Investment Conference 2019

    Amba Hotel, Charing Cross, Strand, London WC2N 5HX
    20-21 May 2019
    Spaces available

    UNFORTUNATELY, DUE TO LOW REGISTRATION NUMBERS, THIS EVENT HAS HAD TO BE CANCELLED. 

  • LMS Invited Lectures 2019

    ICMS, The Bayes Centre, 47 Potterrow, Edinburgh EH8 9BT
    20 May 2019 - 24 May 2019

    Spaces available

    On May 20-24 2019, Prof Søren Asmussen (Aarhus University) will deliver a course on lectures on advanced topics in life insurance mathematics.  This will be held at the International Centre for Mathematical Sciences, Edinburgh, and will be accompanied by supporting lectures from Prof Corina Constantinescu (University of Liverpool) and Prof Andrew Cairns (Heriot-Watt University). To register, please visit https://www.icms.org.uk/LMSAsmussen.php.

  • KSS events – GMP Equalisation - where are we now? Edinburgh

    KPMG  Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
    23 May 2019

    Fully booked.

    This talk will discuss the various methods available for equalising GMP, key considerations and actions for both Trustees and Companies, and a discussion of some of the associated legal issues. This event is now full, however, to join a waiting list please email Sarah.Dawes@KPMG.co.uk

  • SIAS Event: Navigating Organisational Politics Positively

    Staple Inn Hall, High Holborn, London, WC1V 7QJ
    3 June 2019

    Spaces available

    The term 'office politics' usually has a lot of negative connotations and indeed an inability to be able to navigate an organisation's formal processes and interact effectively with others at work can have far reaching adverse consequences.

  • Spaces available

    Public scrutiny of what investment funds deliver for consumers continues to be high profile, with the FCA’s Asset Management Market Study requiring fund managers to make (and publish) an annual assessment of value for authorised funds from the end of 2019.

  • Reimagining ageing

    Staple Inn Hall, High Holborn London WC1V 7Q
    14 June 2019

    Spaces available

    Reimagining ageing, hosted by the Institute and Faculty of Actuaries, in partnership with the ILC

  • Spaces available

    Increasing global concern over the impact of climate change has recently led to public scrutiny over the adequacy of existing risk management practices by insurance firms and pension schemes in dealing with these challenges, that potentially impact both individual actuaries and the IFOA generally.

  • Pensions Conference 2019

    Bristol Marriott Hotel City Centre, 2 Lower Castle Street, Old Market, Bristol, BS1 3AD
    18-19 June 2019
    Spaces available

    Covering current topics and industry trends, the conference also includes a pre-conference evening dinner (18 June) giving you the opportunity to develop your network. 

  • KSS event – FinTech and The Actuarial Profession

    EY, Atria One, 144 Morrison Street, Edinburgh
    19 June 2019

    Spaces available

    This KSS talk from FinTech Scotland's CEO will explore the mission to create an integrated Fintech ecosystem through provision of funding, support, infrastructure and talent that recognises and responds to the needs of all stakeholders - and the overarching aim for Scotland to be one of the top 5 Fintech global leaders by 2020.

    To book your place, please email Barry_Shannon@standardlife.com 

  • Current Issues in General Insurance (CIGI) 2019

    Inmarsat, 99 City Road, London, EC1Y 1BJ
    19 June 2019

    Spaces available

    CIGI is a well-established one-day seminar designed to increase awareness and encourage discussion on a variety of topical issues across the general insurance industry. 

    There will be an excellent and diverse line-up of speakers to provide a variety of perspectives and challenge covering technical and professional areas. 

  • Cass Event – New Thinking about Deferred Annuities

    Cass Business School, Executive Education Facilities 200 Aldersgate St, London EC1A 4HD
    21 June 2019

    Spaces available

    Our motivation for discussing this important subject comes from some exciting recent research which has analysed the impact of behavioural factors on the decision to purchase an annuity. This work has shown that behavioural factors can explain the well-known low demand for immediate annuities but this research also identifies an important opportunity in relation to deferred annuities (DA). The research suggests that these factors lead to positive incentives to purchase a DA and that, for longer deferred periods, a DA could be an attractive product for both consumers and insurers.

  • AGM and Presidential Address 2019 + Volunteer and Member Drinks Reception

    The Hub  Castlehill Edinburgh EH1 2NE
    26 June 2019

    Spaces available

    Notice is hereby given that the ANNUAL GENERAL MEETING of the INSTITUTE AND FACULTY OF ACTUARIES will be held at The Hub, Edinburgh on Wednesday 26 June 2019 at 16.30 (Preceded by tea from 16.00) and followed by a PRESIDENTIAL ADDRESS given by John Taylor.

  • IFAM event - Actuarial Teachers’ & Researchers’ Conference 2019

    Institute for Financial and Actuarial Mathematics Department of Mathematical  Sciences The University of Liverpool Mathematical Sciences Building Peach Street Liverpool, L69 7ZL
    27 June 2019 - 29 June 2019

    Spaces available

    The Institute for Financial and Actuarial Mathematics (IFAM) at the University of Liverpool is pleased to host the 2019 Actuarial Teachers’ and Researchers’ Conference from 27-28 June 2019. This annual two-day event has been running annually now for many years, each time hosted by a different university, and provides all those interested in actuarial research and education a great opportunity to share their ideas and catch up on the latest developments.

  • SIAS: The Impact of Air Pollution on Health and Life Expectancy

    Staple Inn Hall, High Holborn, London, WC1V 7QJ
    2 July 2019

    Spaces available

    Air pollution has gained increasing attention lately. Nicola Oliver, head of longevity and mortality research for Medical Intelligence, will discuss not only the impacts of air pollution on health and life expectancy but also how as an industry we should be addressing it.

  • GIRO Conference 2019

    EICC, The Exchange, 150 Morrison St, Edinburgh EH3 8EE
    24-26 September 2019
    Spaces available

    GIRO is attended annually by over 800 delegates and speakers who are keen to discuss key topics such as Pricing, Reserving, Modelling and the future of the insurance industry. GIRO 2018 was a huge success and we have opened bookings early for what we hope will be another brilliant conference at the EICC in Edinburgh this year.