At Defaqto’s recent 'Unlocking Retirement Strategies' conference, Paul Johnson, Director at The Institute of Fiscal Studies urged policymakers to give firmer guarantees to help advisers navigate decumulation and tackle retirement uncertainty.
"The UK Government must provide clearer, long-term guarantees on the State Pension if it wants people to engage meaningfully with retirement planning."
Johnson warned that uncertainty around the future of the triple lock and State Pension age is undermining public trust — and making the job of financial advisers harder.
“People are genuinely worried that the State Pension won’t be there in 30 years, so why would they plan properly? We need the Government to set guarantees.”
Johnson acknowledged that while today’s retirees are relatively well-off — thanks to strong Defined Benefit and homeownership — tomorrow’s pensioners face a very different landscape including more people renting in retirement, and stagnant wage growth.
Despite widespread anxiety about its future, Johnson shared his view that the State Pension will remain, mainly due to “the political risk of removing it” he said. “Even the richest fifth of people get a quarter of their retirement income from their state pension.”
Johnson outlined four key guarantees that the Government should make to help both savers and advisers in retirement planning:
- State Pension level set to always be relevant to earnings
- State Pension will always be protected against inflation
- State Pension will never be means tested
- State Pension age will only go up with life expectancy increase
On the role of financial advisers, Johnson highlighted a current advice gap for those with smaller pension pots — but said that’s likely to change as pots increase.
"A relatively small fraction of people use advice currently. Many with Defined Contribution have small pots and that’s where advice through better technology and AI can be worthwhile. In the future, even low earners will amass meaningful savings and as pots grow, so will the need for advice."
Advisers face behavioural barriers too. “If you look at the chances of a current 60 year old living to over 85, then men have a 50% chance of doing so and women, nearly a 60% chance. However, when you ask people in their early 60s what their probability of living to 85 is, they massively underestimate their probability of actually making it to relatively old age. So you've got longevity risk.”
Johnson advocated for stronger support around longevity planning, more use of insurance-style products, and a national rethink on the framing of the tax-free lump sum.
Crucially, he reiterated that decumulation remains the “hardest question in personal finance.” with advisers at the event echoing the sentiment.