A situation where retired people in Australia are overly worried about running out of money during retirement and are underspending as a result, is now fast becoming an issue for the UK retirement markeplace, according to AJ Bell.
Such “reckless conservatism” has been identified as a problem in the Australian pension system and “may well prove to be a central issue” for UK policymakers to address following on from the introduction of the pension freedoms in 2015, according to AJ Bell’s head of research Tom Selby.
Selby points to research that has been published via an Institute for Fiscal Studies (IFS) briefing paper published earlier today that provides “some interesting insights” into how people use their non-pension financial assets in retirement.
“This research paints a fascinating picture of the way people spend – and in many cases don’t spend – their financial assets as they get older,” said Selby. “Such thrift will be perfectly sensible in some circumstances, particularly where individuals have relatively small savings pots and choose to hold onto the money to cover any unexpected bills.
“Equally, others will be leaving significant assets untouched in case they need to pay for long-term care as they grow older, while some will simply prefer to pass assets on to loved ones rather than spend them while alive.
“That said, it is likely some of these people are overly worried about running out of money during retirement and are underspending as a result.
“Such reckless conservatism has been identified as a problem in the Australian pension system and may well prove to be a central issue for UK policymakers to address following the introduction of the pension freedoms in 2015.”
Among the key points that the research highlights includes a view that most financial wealth will be left unspent during retirement and thus bequeathed to younger generations. And while wealthier people tend to spend their assets at a faster rate, all sections of society are, on average, underspending in retirement.
Other evidence suggests individuals are holding on to wealth in anticipation of paying care costs as they get older, housing wealth remains a key part of many people’s retirement, with 40% of homeowners moving in later life.