Hybrid products that combine flexibility with later life income security would be useful to help older investors manage their fears of investment volatility, research by the People’s Partnership has found.
Guidance, as opposed to advice which remains a ‘premium product’ out of reach for most retirees, could also play a part in helping more people manage the financial transition to later life, the provider claimed.
Phil Brown, director of policy at the People’s Partnership, said he hoped the Financial Conduct Authority’s (FCA) review of the advice boundary would allow for a more relaxed environment that will “allow firms to do more for people.”
He said: “We regulate for the extremes and that creates problems for the masses.”
The People’s Partnership unveiled the results of its ongoing study into the financial habits of retirees at the Pension and Lifetime Savings Association’s annual investment conference in Edinburgh.
Cost of living and inflation
Brown said the fifth instalment of the study, which started in 2016 and is in partnership with State Street Global Advisors, was conducted in a “profoundly different period” to previous ones which had been compiled during a period of low interest rates and inflation.
New Choices, Big Decisions, found a larger number of retirees had gone back into work and that supplementing their income was not always the main reason.
The study also found that wanting to buy luxuries and craving social interaction were just as important.
Brown added: “Generally they are working in part time jobs which are more flexible and they are tending to choose local work and not to commute.”
State pension is still ‘bedrock’
Attitudes around the state pension also proved a surprise. Brown said: “Before getting the state pension people viewed it as a pittance. But once they did get it they had a different view of it.
“For them it is covering most of the cost of living and of running a house in a way they didn’t think it would.”
“They were impressed with the simplicity of it and that it is guaranteed, and inflation proof because of the triple lock.”
Inflation had taken the retirees by surprise, but many of those who had not taken out inflation proofing said, even with hindsight, they still would not have done so.
Cash is king and shares are scary
Cash also remained king for the savers, and there was a notable reluctance to move money from established bank savings accounts to ones paying more interest.
One retiree said she felt her money had been safe with her bank and was not going to move it, despite the opportunity to earn more interest on it.
The research also found some of the savers who remained invested were starting to show signs of cognitive decline, in particular not being able to cope with the volatility of their stock market-based investments.
People’s Partnership said there was also evidence that savers were not regularly reviewing their investment objectives and decisions.
Brown said there was a case for hybrid products that allowed retirees to slowly withdraw their savings from a more volatile environment - a form of phase flexible drawdown through to lifetime income that would allow some exposure to stock market growth.
