University researchers are warning that the UK Government’s Pension Wise website is negatively influencing savers’ decisions – encouraging them to abandon long-term financial security and cashing out lumps sums that they should be conserving for their retirement.

The dire warning comes from academics at the University of Scotland, whose study with over 2,000 participants has concluded that the life expectancy calculator on the Pension Wise site is helping to persuade people not to purchase an annuity – and they are now calling for the calculator to be removed.

Dr David Comerford of the Behavioural Science Centre at the university, supported by Jenny Robinson, has been studying people’s decision-making around their pension wealth in the wake of pension freedoms, which (since 2015) has given savers greater choice around where they invest their pension pot.

One of the aims of Pension Wise is to encourage people to invest for the long term, and one of the tools on the site is a life-expectancy calculator to help them determine how long their retirement will last.

Dr Comerford said: “Since the reforms, around a million people have cashed out £23 billion in pensions savings – often harming their financial future in the process. And according to our research, the system that the government brought in to help advise retirees may actually be making things worse.

“In countries such as Australia and the USA, where pension freedoms have been in place for longer, an interesting trend has developed.

“In those countries, people tend to cash out their pensions rather than choose an annuity, which provides a guaranteed income for life and the associated security that brings. Economists have dubbed this the ‘annuities puzzle’ because there is no rational explanation for choosing greater risk and lower returns over a higher paying, sure thing.”

Writing in The Conversation, Dr Comerford has linked the phenomenon to “Terror Management Theory”, a recognised psychological approach called which involves people’s desire to insulate themselves from a deep fear of having led an insignificant life and inevitable death.

And, he says, encouraging people to estimate their likely life expectancy is effectively asking people to face up to their own mortality – a situation that drives them to take out the 25% lump sum they are allowed as well as potentially make other poor investment decisions.

“While the Government’s Pension Wise website seeks to provide information to assist people, the failure to adequately test the effects of the content and tools on the site, such as the life expectancy calculator, has created an unintended bias.”

Responding to the research, the Money and Pensions Service have defended the site saying that the research gave people a choice between just two options – buying an annuity and taking cash, ignoring the option of a drawdown facility.

Richard Collinson, Founder of RetireEasy, says that “Whereas cashing out a pension plan in full may well be a poor choice, taking some funds early can be justified as long as the retiree fully understands what effect this will have on the longevity of their funds. The RetireEasy LifePlan enables a user to do so and therefore avoid the risk of running out of money too soon ”

We’d like to know…

In your experience, has estimating how long your retirement likely to last led you to make unwise decisions on your financial future… or the complete reverse?  Please send your comments to: support@retireeasy.co.uk