Context

The UK is generally poorly prepared for retirement, with this picture changing little over the past decade. Only about half of the population (at the time of publication) paid into a pension plan or were a member of a previous pension scheme, with an estimated 12 million people not making adequate provision for retirement. Ensuring that people in the UK are financially capable when making decisions for retirement is a major challenge, not just regarding pensions but also other forms of savings and assets, mortgages, and consumer credit commitments. This is set against a rapidly changing policy environment, including changes to the state pension age, auto-enrolment into workplace pensions, planned increases in automatic enrolment pension contributions and ongoing debates around pension taxation and the funding of social care.

The study

This 2017 review sought to bring together evidence about financial capability as related to retirement planning. Its main objectives were to:

• Identify evidence gaps;
• Provide an evidence base to inform the work of the UK Financial Capability Strategy and the Retirement Steering Group;
• Inform decisions on generating a better evidence base where knowledge gaps exist.

The review has three main strands:

1. An assessment of the quality of the evidence base;
2. Findings from non-evaluation (insight) research;
3. Findings from evaluations of interventions that could improve financial capability in relation to retirement planning.

The review focused mainly on UK evidence, though some international research was included where it was felt it added significantly to the knowledge base. Around 60 pieces of evidence were identified and reviewed. These included:

• Qualitative research studies;
• Analysis of large scale datasets;
• Consumer surveys;
• Evaluations of interventions/prototypes initiatives.

Most of the evidence identified was in the form of ‘insight’ reports, which while often containing recommendations, do not involve the testing or evaluation of them.

Key findings

• The belief that people who manage money well day-to-day are better placed to plan for retirement is supported by the literature.
• Quantitative evidence highlights the importance of financial resources in retirement, but also the importance of resource depletion over time.
• Analysis of the Wealth and Assets Survey shows that consumer borrowing decreases sharply among people aged 50+, but among some borrowers credit use persists, often having implications for much later on.
• There is quantitative and qualitative evidence that people do not think about or make plans to pay for long-term care.
• There are a small number of studies that indicate people generally are not well prepared for life events, such as a bereavement.
• Generally, savers with larger pots are more likely to seek professional advice.
• Reasons for not accessing advice include cost, lack of trust and a perceived lack of need.
• There is a fair amount of research suggesting that some of the most common behavioural barriers to good financial planning are inertia and passivity (though this is offset in part by auto-enrolment into workplace pension schemes).
• Financial confidence has also been found to be a key component of a financially capable ‘mindset’.
• Most people are unable to picture what the future looks like in terms of likely income for retirement, the possibility of needing to pay for care, and life expectancy.
• Simplified pension information seems to result in better knowledge of the plans’ features, while visualisation of pension information is highly appreciated by people, particularly by those with low numeracy/literacy skills.
• Some of the evidence gaps identified for future research include:
• The impact of life events on retirement planning (especially in relation to separation and divorce);
  • The links between managing money well and people’s ability to plan in retirement;
  • The impact of problem debt and borrowing on planning for, at and in retirement;
  • The sources of help that people use to plan for, and during, retirement;
  • The abilities people may need in the years between enrolling into a pension and the time leading up to retirement;
  • The abilities people may need once they are in retirement;
  • People’s perceptions of their life expectancy and what they are based on;
  • Levels of tax literacy and how to improve them.
  • Generally, there is significant scope for future studies to study ‘what works’ to improve retirement planning.

Points to consider

• The authors acknowledge that this is not a systematic review. Therefore there may be omissions and pieces of evidence that were not considered.
• This report is relevant to all stakeholders and policymakers who are interested in how older people prepare for retirement. It will be particularly suitable for those looking to commission research into how financial capability interventions can help people make the correct financial decisions for their retirement.
• The research is thorough and comprehensive, and should be relevant throughout the UK.