Research Library
Research on predictions of income in retirement
On this page
Context
A large body of previous research has highlighted that most people do not save enough for their retirement. It has been estimated that seven million people will not have as much as they want or need in retirement. Coupled with an ageing population, and the large proportion of people who now reach retirement age, personal provision for retirement income has become ever more important as a policy concern.
The current study therefore is part of a programme of social and experimental research, initiated by the Department for Work and Pensions, to investigate people’s underlying attitudes, knowledge and behaviour towards retirement saving; the extent to which people can predict their future retirement income and how; and how their retirement planning might be improved. The current study was undertaken to explore how people felt and responded when asked to predict their income in retirement.
Key findings
- People tend to consider individual sources of income, rather than income as a whole and some found it difficult to distinguish predicted income from the income they wanted or needed. It was particularly difficult for people to predict income from savings and the State Pension.
- People differed in the extent to which they were both willing and able to make retirement income predictions. This was partly explained by individuals’ attitudes towards their financial future and the priority they gave to it. Knowledge of and holding of different income and investment streams was also important, as were age and income level.
- People varied in the extent to which they made guesses, used rules of thumb and financial calculations for predicting their retirement income. Depending on their approach, people used four main frameworks: external financial forecasts; factoring in future changes to their current position; what they want or need; individual income streams.
- Those with the least knowledge adopted guesses, while older participants (who tended to have more information readily available to them) were more likely to use financial calculations. Uncertainties around future employment, retirement age, future financial commitments, the wider economic context and how pension plans would perform made it more difficult for people to predict their income in retirement.
The researchers identified several rationales for experimental work to be undertaken to better understand how people make predictions, based on hypothetical examples. Pension income would be the most likely source of income to make the subject of further investigation, as participants had the clearest concept of this as a source of retirement income; however, any a prior assumptions would need to be set out clearly.
Points to consider
- This study was well-designed and reported. The small size of the study was appropriate to the nature of the issues it sought to explore and the conclusions it has drawn. The methods of data collection are appropriate and described clearly, but the methods of analysis are not given.
- The issue of under-saving for retirement remains important and increasingly so. The findings will continue to have relevance for a large proportion of the UK population (not just in England, where the research was carried out), and highlight important factors for interventions which seek to promote retirement saving should take into account.
- Given the careful study design, the findings should be of wide generalisability and applicability within the population (of working age adults) from which they are drawn.