Pensions are a regular payment made by the state or a private company to Britons when they retire.
After a long working life it is often something to look forward to, but can also be a big source of worry.
Pensions are sometimes a minefield, with making the right decisions and saving enough being of high importance.
New research has now revealed that many Britons could actually outlive their pension pots.
According to the study by the Pensions Policy Institute (PPI), 28 per cent of retirees face decisions that could see them outlive their pension pot in retirement.
The Evolving Retirement Outcomes report, sponsored by Legal & General, found that borrowers approaching retirement with high levels of defined contribution savings, but little or no defined benefit pension, could see their retirement income vary by up to 70 per cent.
This will be based on decisions they have made, and continue to make, about their private pensions.
The study stated that if Britons withdraw between 3.5 per cent and 10 per cent per year, the Pensions Policy Institute found that these decisions could potentially increase the number of years they spend in retirement after having depleted their pension savings by up to 15 years.
According to the PPI research, consumer uncertainty about how long they expect to live in retirement posed a significant challenge to retirees trying to make their savings last throughout later life.
The findings raised the importance of including some form of income security when planning for retirement, such as an annuity, to prevent pension pots being exhausted.
The research also showed the importance of consumers seeking professional advice and guidance when planning retirement to help them secure better outcomes in later life.
However, it also showed that decisions about how individuals receive income in retirement are not a “once and done” event.
Financial capability and the impact of ageing on cognitive ability both meant retirees would need to revisit their retirement plan throughout later life.
Emma Byron, managing director for Individual Annuities, Legal & General said: “Pension reforms have given many of us the flexibility we want for retirement, but it also means that we now have to make our own decisions about how we access our pension pots.
“As this research shows, that could lead to a retirement that we didn’t anticipate, with many of us potentially outliving the money we’ve saved for later life.
“I believe that these findings pinpoint the importance of taking advice when it comes to planning retirement, whether it’s to understand the options like annuities and drawdown or to get a better understanding of how the choices we make might affect our experience of later life.
Policy researcher for PPI Lauren Wilkinson added: “If people are engaged and informed, they are able to achieve positive outcomes using the range of products already available to them.”
There are many types of pensions that can be received, the most accessible is the state pension.
But, how do you actually get your state pension? You do not get a pension automatically, most Britons need to claim the money for their retirement.
The only people who get their pension automatically are men born before 6 April 1951 and women born after 6 April 1953. Those born on or after these days will have to claim their own pension.
