The Chancellor announced in the Budget that from April 2015 no-one will have to buy an annuity. This was a huge blow for the £14bn-a-year annuity industry, which has thrived on 'forced' annuitisation. Over 300,000 people retire each year with a defined contribution pension, most of whom are required to buy an annuity under current legislation. The equity's market verdict on the announcement was dramatic: share prices of some life companies were down 40% on the day. In the first half of 2014 annuity sales have fallen by over 50%.

What will savers do?

Clearly, many people will no longer buy an annuity when they retire. What will they do instead? More broadly, what do savers need from the pensions industry? 

To help answer these questions, Deloitte analysed a YouGov survey of 3,314 savers aged 50+, approaching retirement. The key findings, and their implications for pension providers, are below: 

Advice and Information critical

Savers lack the knowledge to plan for their retirement. The survey showed that half (49 per cent) of those approaching retirement admit they don't know what percentage of their final salary they will need in order to be financially comfortable when they stop working.

In addition, savers are worried about their pensions. The most wanted feature of pensions, chosen by 59%, was to have guaranteed retirement income or, in other words, protection against running out of money. The second most popular feature, wanted by 58%, was to be reassured over the financial safety of pensions.

However, no doubt influenced by negative publicity around annuities and wanting more choice over what to do with their savings than in the past, few people are definitely planning to get an annuity.

The result is that many savers are unsure of what to do when they retire. The most common response to the question 'which, if any, of the following do you think you will do when you retire?' was 'I'm not sure', given by 29%.

Now more than ever, the pensions industry must help people plan for retirement. In particular, the industry must provide savers with the advice and information they urgently need.

Advice and information must engage savers

Advice and information from the industry must engage its customers more than in the past. Specifically, it needs to overcome three stumbling blocks: a lack of interest in retirement planning, distrust of the pensions industry and low motivation on the part of savers to improve their pensions.

At the moment, savers are surprisingly similar

The survey showed that, at this early stage in the introduction of pension freedom, many savers appear surprisingly similar. For example, the survey implied that having a guaranteed retirement income as a feature of pensions is equally important to savers of very different wealth: 61 per cent of savers on £100k - £150k want a guaranteed pension income, compared to 60 per cent of those on £5k – £10k. This is odd because the wealthy need protection against running out of money less than do other savers. The likely explanation for this is that most savers haven't yet worked out what they want from their pensions.

A one-size-fits-all solution won't work well

However, distinct customer segments will emerge. Wealthier savers are likely to want more flexibility around the amount of income they can draw from their pension pots than the less well off. Perhaps more interestingly, women could prove more risk-averse than men, and therefore want access to lump sums less than men.

Success will hinge on customer engagement and utility of propositions

The implications of pension freedom for providers are becoming clearer: success will depend on how well providers engage their customers and, increasingly over time, how useful their propositions are to different customer segments.

For more details of the key findings, please download our Unlocking 'at-retirement report.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.