Pension savers with small pots want freedom too, says NEST

New research into savers’ attitudes towards retirement income options reveals significant support for the development of new retirement products that combine flexibility, security, and ‘rainy day’ cash, even for those with smaller pots.

However the research also shows that savers worry about doing the ‘right thing’, and don’t feel confident about taking on the responsibility of making complex decisions throughout their retirement.

Otto Thoresen, Chair of NEST Corporation, commented:
‘Many people being brought into pension saving through auto enrolment will typically have small pots when they come to take their money out, but it’s clear that many want to take full advantage of the flexibilities and options. And why shouldn’t they?
‘However, working out what to do with your retirement pot requires a complex set of decisions and an in-depth knowledge of the options available to you.
‘There’s clearly an appetite for products that will provide flexibility but don’t require lots of complex decisions by consumers. The challenge is how to provide this at low cost to people with small pots.’

Ignition House, on behalf of NEST, conducted in-depth qualitative research with savers from across the country who are approaching retirement to discover what retirement income options they were looking for.
The participants had similar characteristics to the new automatically enrolled generation. The research specifically focussed on basic rate tax payers with defined contribution (DC) pots between £20,000 to £50,000; as well as those with larger pots.
Key findings from the research are:

• Respondents welcome the new pension freedoms, but lack confidence about navigating the more complex choices now open to them.
• While people value flexibility highly many are worried about making the ‘right’ decision and worry about having to keep making complex decisions throughout their retirement.
• They want access to products that combine the flexibility of drawdown, the security of annuities, and the accessibility of additional ‘rainy day’ cash. This was true even for those with the smallest pots.
• They liked the concept of ‘lifetime income’ strategies that ‘do the hard work for them’ along the lines of NEST’s Blueprint, which incorporates flexibility, security and ‘rainy day’ cash with expert management of investment and governance around delivering a steady and sustainable income.
• Making a decision on insured later life income protection at the age of 75 was much more appealing than at the age of 65 as this felt like a more appropriate stage of life.

Recent quantitative survey research from among NEST members supports these findings. When asked what they valued most from their pensions savings:  

• 92 per cent said a regular income for life was important, very important or essential.
• 95 per cent thought flexibility was important, very important or essential.
  This desire was shared across genders, with women being slightly more insistent that a lifelong income is essential, as well as across income deciles and a wide range of pot sizes including those with less than £5,000.

Notes for editors
Following the introduction of new pension freedoms, known as ‘Freedom and choice’, NEST published its retirement income blueprint setting out an approach that would best meet the needs of its members. The blueprint was developed after wide consultation and research. NEST has continued to research its members’ needs and consult with the industry about how it can meet these needs in the future.
NEST also published its guiding principles for the design of retirement pathways for the automatically enrolled generation.

The department for work and pensions (DWP) is currently consulting on whether NEST should evolve to respond to the changing pensions landscape.
Insights from the Pensions Policy Institute, back up many of the findings from the research released today.