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Pensions & Retirement

Scottish Widows launches Retirement Matrix to address decumulation

The tool will help advisers have better conversations with customers and help them boost their retirement income.

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Scottish Widows has today launched a ‘Retirement Matrix’ tool to help advisers have better conversations with customers and help them boost their retirement income.

The mapping tool allows current and potential retirement products to be mapped against what people want from their retirement income on a 3D cube, to see whether retirees’ needs are being met by the products which are currently available.

The Retirement Matrix was included in a report from Scottish Widows called ‘Decumulation: Understanding the Needs of the Nation’, which shared the views of around 1,500 retirees and near-retirees towards accessing their pension savings.

The report revealed a disconnect between what people want from their retirement income and what products they were actually choosing.

The report also suggested that innovation was needed in developing retirement income propositions, and that additional ways of supporting customers through important decisions will be required.

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For example, 80% wanted a product which provided a guaranteed income for life – yet only a minority of customers were purchasing an annuity product.

More than half (55%) said that a predictable income was important, but the majority selected a product where their income was dependent on investment returns.

Scottish Widows outlined three factors which influenced retirement choices: control – income for life versus flexibility to decide what they spend and when; consistency – consistent or variable monthly income; and legacy – passing on the pension pot in case of death.

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More than two in five (43%) said ‘control’ was their primary decision point, ‘legacy’ was the second (33%), and ‘consistency’ third (24%).

Qualitative research to support the Retirement Matrix indicated that those with substantial assets outside their pension were less likely to worry about the ‘legacy’ aspect, while focus increased for those whose pension pot was the only potential source of wealth transfer to the next generation.

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Pete Glancy, head of policy at Scottish Widows, said: “Auto Enrolment has been a game changer in helping more people boost their pension savings, but the model determining how retirees will access their funds in retirement could use a similar shot in the arm.

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“The options at retirement can be daunting and complex, and people who can’t afford the services of an Independent Financial Adviser may inadvertently make choices which do not meet their needs, and those of their family.

“At the same time, policymakers are still working through regulatory and legislative changes which will determine what is and isn’t possible in the future.

“People are telling us loud and clear what they want, but not everything they want is currently available, or indeed permitted.

“Continued collaboration between the pensions industry and policymakers is required to determine what is needed and then deliver it.

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“This research is another illustration of why an independent Long-Term Savings Commission, that considers UK financial resilience in the round, is necessary to deliver the future we want for Britain in retirement.”

The FCA recently floated the idea of using ‘choice architecture’ more widely in customer conversations; 38% of survey respondents expressed a preference for a service where the pension provider offers them a specific outcome, after taking them through a series of questions.

Less popular options included full advice (14%), simplified advice (14%), guidance (17%), and ‘none of these’ (18%).

Attitudes towards the five proposals largely remained consistent across pot sizes, albeit with a preference for full advice from respondents with the largest pots over £300,000.

People with more than one pension pot tended to want support which related to all of their pots collectively; 81% of people with three or more pots wanted support which considered all of their pots, suggesting that Pensions Dashboards will have an important role to play.

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Emma Watkins, managing director for retirement at Scottish Widows, said: “Helping people make the most of hard-saved pension pots is not only a priority for Scottish Widows but a national priority.

“Our research has placed the customer and their needs front and centre of this debate, and it clearly shows that customers need better support when it comes to making these important retirement decisions.

“This research and the Retirement Matrix model can help pension schemes and providers to design products that meet customer needs, within the bounds of what is permissible today, and help inform the policy debate on what could be permissible tomorrow.”

The report concluded with a list of recommendations to address the ‘decumulation dilemma’:

First, new concepts such as Decumulation-Only CDC could meet demand – but only if greater flexibility is built into the rules to allow pots to be passed on and a ‘smoothing of investment returns’ is put in to achieve predictability.

Clear communication of these new concepts will also be vital to consumer understanding.

Next, people need help in making important and complex decisions.

The ideas being explored by the FCA through their Advice and Guidance Boundary Review (AGBR) could be key to providing the sort of decision making support which people have said they want, but which is not available today.

Finally, people want to have engaging conversations about retirement where all of their pension savings are considered, including the State Pension.

28% of people wanted that support to go even further and include other assets, savings, and investments.

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