And a really interesting report it is too. I don't think it looked at this issue of interactions with means testing and household income though? No criticism, but it was looking at different research questions I think. Apologies if I am wrong about this!
Debbie
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Debora Price
Professor of Social Gerontology and Director of MICRA
Manchester Institute for Collaborative Research on Ageing
The University of Manchester
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From: Social-Policy is run by SPA for all social policy specialists [[log in to unmask]] on behalf of David Sinclair [[log in to unmask]]
Sent: 14 April 2016 12:20
To: [log in to unmask]
Subject: Re: Pensioners' incomes
Hello
We (ILC-UK) did some work last year which projected/modelled the impact of different choices at retirement (under the new pension freedoms)
The report is here: http://www.ilcuk.org.uk/index.php/publications/publication_details/here_today_gone_tomorrow
And I'm pasting the web summary below:
The report, "Here today, gone tomorrow" models the outcomes of four different approaches to using DC pension wealth: 1) annuitising, 2) blowing the pot on big ticket items, 3) putting everything into a savings account and 4) leaving the fund invested.
It utilises data from the largest survey of the over 50s in England and applies these approaches to different consumer segments aged 55-74. It finds that:
Even if all those approaching retirement were to annuitise, over half (1.1 million people) will not be able to secure an adequate income unless they use non-pension assets or receive additional benefits on top of the State Pension.
But in a scenario where the DC pot is used to buy big ticket items, an additional 350,000 people (1.4 million people in total) will not be able to secure an adequate income in retirement.
Putting everything in a savings account also risks people running out of money before they die. We project that average replacement rates could fall from 66% when they have some savings left to 49% when they do not. Given that people typically underestimate their life expectancy by upwards of four years, spending savings too early is a real possibility.
Leaving the fund invested also risks people running out of money before death as well exposing individuals to substantial income volatility. Within a balanced fund of 60% bonds and 40% equities, we estimate that average annual income in retirement could range between £18,000 and £12,000 until the fund runs out.
Not everyone will be equally affected by the choices they make. There are 850,000 individuals who are at high risk of seeing big income shortfalls from making particular decisions. Many of the individuals from this group have low levels of financial capability allied to a high concentration of financial wealth locked up in DC schemes. For this group the report finds:
Blowing the pot would lead to a substantial fall in average projected replacement rates - from a replacement rate of almost 70% if they annuitise, to less than 40% if they blow the pot.
Putting everything into a savings account could result in substantial income falls at the end of life - from a replacement rate of over 60% when they have some savings to less than 40% when savings run out.
Keeping the fund invested could also result in substantial falls in income at the end of life for this group - from a replacement rate of over 70% when they can draw on the fund to less than 40% when the fund runs dry.
The report argues that "such income falls coming at the end of life could have disastrous implications resulting in individuals cutting back on expenditure just at a time when they may need it most - i.e. to maintain basic living standards as well as paying for long-term care".
David
Register to attend our 2016 Future of Ageing conference http://futureofageing.org.uk/
Director
International Longevity Centre - UK
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-----Original Message-----
From: Social-Policy is run by SPA for all social policy specialists [mailto:[log in to unmask]] On Behalf Of Debora Price
Sent: 14 April 2016 12:04
To: [log in to unmask]
Subject: Re: Pensioners' incomes
Thanks Gareth this is interesting and if anyone knows of any work assessing outcomes I would also be interested in seeing it. The situation is of course more complex than this with many pensioners married, and also potentially having other sources of capital and income.
I am not sure there is any source of data that collects the variables you would need to answer this question (again, if anyone knows of one I would be interested) since you would need to know what choices people were making about individual pension pots as well as a host of other information about their financial lives. I have done a fair amount of research over the years on individual and couple income in later life - it is time consuming to do as you need nationally representative large household datasets that collect detail on all sources of income and household status (such as Understanding Society, the Family Resources Survey, or ELSA) and these tend to be released to the wider research community a couple of years after collection - for example Wave 5 of Understanding Society which is available for analysis now was collected between Q1 2013- and Q4 14). The DWP used to helpfully produce an annual series called something like the Individual Income Series drawn from the FRS and relatively timely which was excellent but it was discontinued I think in 2006, although it wouldn't have contained data on choices made and there is also always this time lag with complex national datasets even though the DWP has first access. There was also an excellent technical paper produced some years ago by the DWP called something like "Asking people about pensions" which revealed how difficult it is to collect accurate pension information from individuals in household datasets. We found this too in a recent article: http://dx.doi.org/10.1017/S0144686X15000690 - we had to combine what people said were their state pensions and their pension credit because it was clear from our initial research descriptives of the data that many people were confusing the two.
The interactions with means testing have always thrown up some of the most complex issues for the most vulnerable people. And caught as everyone is in the headlights of not being able to give "advice" because of regulatory regimes (I wrote a blog about this a couple of years ago: https://gerontologyuk.wordpress.com/2014/08/04/pensions-advice-guidance-does-it-matter/) , I think this throws up some really important questions.
Debbie
***
Debora Price
Professor of Social Gerontology and Director of MICRA Manchester Institute for Collaborative Research on Ageing The University of Manchester [log in to unmask]
x51385
0161 275 1385
________________________________________
From: Social-Policy is run by SPA for all social policy specialists [[log in to unmask]] on behalf of Gareth Morgan [[log in to unmask]]
Sent: 14 April 2016 11:35
To: [log in to unmask]
Subject: Pensioners' incomes
Dear All
I have been looking at the effect making different choices among the new pension freedoms has on the net income of pensioners with average or lower pension savings. The differences can be substantial, particularly when taking lump sums rather than regular income (see my note at http://bit.ly/1VrupWS if interested).
I am wondering if there has been any research which has looked at the actual effect of choices made by pensioners. There are statistics on the type and number of choices made but I have been unable to find any work on the consequences on bottom line incomes.
I'd be very grateful for any pointers.
Gareth Morgan
Ferret Information Systems
See my welfare reform blog and papers at http://blog.cix.co.uk/gmorgan
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