Defined contribution (DC) pension savers are at risk of an advice gap both at and in retirement, according to a study from Invesco.

Invesco stated that this gap could see pension holders missing out on the advice, comfort or knowledge they need to make the decisions, which are often complex, required to meet their retirement income needs.

However, the firm highlighted there were “real opportunities” for positive change through facilitating guidance, quelling fears that are stopping people engaging with their pension pot, and driving product innovation across the industry.

It found that more than a fifth (22 per cent) of advisers’ clients were seeking their advice too late for retirement planning, while 29 per cent of non-advised retirees did not seek any retirement information.

Advisers pointed to three ‘major misconceptions’ among their clients: Underestimating how much they need to save (51 per cent), understanding life expectancy (47 per cent), and miscalculating likely retirement spending (46 per cent).

Meanwhile, 64 per cent of advisers said people who sought advice during accumulation had a better understanding of pension options than those who waited until retirement.

More than half (53 per cent) said these clients were more confident in their retirement plans, while 47 per cent stated they had more realistic expectations for their lifestyle in retirement.

The vast majority (79 per cent) of advisers said that running out of money was a top client fear, while health costs (35 per cent) and a desire to leave an inheritance (28 per cent) were also preventing retirees from spending their savings.

Furthermore, nearly a third (32 per cent) of consumers did not spend as much of their pension as they could afford because they disliked the idea of their savings going down.

The study highlighted that these issues were particularly acute for those reaching retirement, as 24 per cent of people had less retirement income upon reaching retirement age than they expected, compared to 12 per cent of those already in retirement.

It also revealed additional retirement income gaps for women (19 per cent had less than they expected, versus 11 per cent of men) and those with low pension wealth (18 per cent had less, versus 5 per cent of those with high pension wealth).

“DC pensions are increasingly becoming the primary source of income for new generations entering retirement,” said Invesco head of DC client engagement, Mary Cahani.

“This shift has highlighted significant challenges related to the uptake of financial advice, the adequacy of pension savings, and the quality of decumulation products. Addressing these issues has become an urgent priority, especially following Rachel Reeves' Mansion House speech, which emphasised the need for a comprehensive pension review.

“We are observing that collaboration across the industry is vital for maintaining a strong focus on member outcomes throughout the entire retirement journey.

“Most importantly, it is becoming clear that collaboration and member engagement need to be represented earlier in the process, particularly during the transition from saving to spending so that individuals are better equipped with the necessary advice and guidance when looking to access retirement solutions that ensure an adequate level of retirement income.”

Invesco also found that 51 per cent of advisers were not satisfied with current retirement products and were calling for product innovation to help meet the evolving needs of DC retirees, while just 10 per cent were ‘very satisfied’ with current retirement products.

Three quarters (75 per cent) of advisers said product innovation was important to addressing retirement planning challenges, with 61 per cent saying that sustainable income generation was their biggest priority.

The biggest barriers to adopting new products were product complexity and sustainability concerns, which were identified as obstacles by 56 per cent and 53 per cent of advisers respectively.

“Product innovation in isolation will not drive better retirement outcomes, but it is essential that as an industry we offer a broad range of income generating solutions for individuals entering retirement,” commented Invesco head of multi asset solutions, Georgina Taylor.

“Alongside product innovation we can help facilitate access to planning tools, guidance and advice to more effectively help people plan for their retirement.

“As an industry we know what the problems are. We now need to collaborate to drive change. We face an increasing population of people in the UK who simply will not have enough to see them through their retirement but collectively we have the skills, knowledge and combined ability to help change that.”

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