02 Aug 2021 5 min read

Waiting for pensions’ industrial revolution

By SuAnn Song

In the third of our blogs on retirement choices in 2021, we explain why pension providers need to make understanding their members’ business, their business.



Keep calm and carry on. This has been many people’s mantra during the pandemic, either because they haven’t been able to work – or the opposite, they’ve never been able to switch off.

After more than a year in lockdown, many have taken the chance to reflect on their work/life balance (or the lack of it!). So with a possible return to ‘normality’ later this summer, people are starting to re-assess their career and life goals. This blog takes a look at the impact of working in different industries on members’ current retirement provision – and what more can be done to support those who are lagging behind.

Vectors of sector preference

There are numerous factors that influence the size of your pot at retirement, including salary, contributions, and your underlying investment strategy. At least at the beginning of your career, your salary is one of the most influential factors because contributions, which are typically expressed as a percentage of salary, are the dominant source of pot growth.

Given that most people retiring today began their careers when defined benefit (DB) pensions predominated, the average defined contribution (DC) pot at retirement is currently £16,000. Of course, this varies across sectors; here we drill down into Retail and Financial Services, which are both well represented as a sample size across our book of business.

Members in Financial Services currently retire with an average pot of £22,000, while members in Retail retire with an average pot of £9,000. In both sectors, the vast majority of members are still taking cash. These members tend to have lower pot sizes, which pulls the average pot size down. But with under half the pots of their Financial Services peers, it’s no surprise Retail members are more likely to favour cashing out over drawdown.

If we look at the average pot by retirement choice, the most significant disparities can be seen in the comparison of the average annuity and drawdown pots in each industry sector.

As may be expected, those taking drawdown have better-stocked pots in both sectors. In the Retail sector, they have over five times the average pot across the sector, and in Financial Services over four times. But even when members do have either relatively large pots compared with their peers, or large pots in absolute terms (>£150,000), we can see that Retail members may still display some reticence in embracing drawdown over the choice of taking it all as cash. Of those with pots greater than £150,000, just 76% in Retail opted to withdraw versus 84% in Financial Services.

Members working in Financial Services generally tend to access annuities and cash earlier than their Retail peers, but drawdown slightly later.


Girls just want to have funds

Our last blog explored the impact of gender on retirement choices, and highlighted the gender pensions gap that exists for current retirees.

But does your employment sector also have an impact on the gender pensions gap and the individual retirement choices made by men and women?

Perhaps surprisingly, the gender pension disparity seems to be narrower in Financial Services than in Retail – women and men choosing annuities have very similar pot sizes, and women have just under two-thirds the average drawdown pot of men in Financial Services, while their Retail counterparts retire with half the average drawdown pots of their male peers.

In terms of the retirement choices made by members, it appears that gender is not an influencing factor the Retail sector. The dominant choice, irrespective of gender, is to take your pot as cash. However, when we look at the Financial Services sector, men are more likely to choose drawdown, even though there is a smaller disparity between men and women here in terms of pot size, while women are more likely to choose cash.

Ready, steady, retire

The question following these insights is whether there are clear reasons for the differences that we have highlighted. In focusing on Retail and Financial Services, we have chosen quite different industries to use for this study. So what can be done to improve the retirement provision of those members who, based on the metrics we’ve shown in this study, are currently falling behind?

Although our book is fairly evenly distributed between men and women, Retail as a sector has a gender split of 64% women to 36% men, while Financial Services has a more evenly split 59% women and 41% men. What these stats don’t reveal is that many of these women are in entry-level positions, such as bank tellers, rather than leadership roles. Although a challenging task lies ahead, companies recognise the imbalance and are pushing to improve the gender balance in their executive ranks.

Over in Retail, members are also more likely to work part-time and change job more frequently. Flexible and part-time working has become more widely accepted, and wider adoption has likely been accelerated by the pandemic. The modern-day employee may move between jobs and even industry every few years. They are predicted to have accumulated an average of six different pots by the time they retire.

Piecing together the complex finances of the modern member to provide a holistic picture is no small feat, but steps are being taken, for example through pot consolidation and the Pensions Dashboard, as well as awarding employment rights to those working in the gig economy. Increasing the visibility to members of what their current retirement provision is, along with guidance on the steps they can take to improve this, will help to increase members’ readiness for retirement.

SuAnn Song

Solutions Strategy Manager

Su focuses on developing investment solutions and thought leadership for DC clients. She joined LGIM in January 2019, having previously been an investment consultant at PwC, where she worked with pension funds, charity and university clients in formulating investment strategies and portfolio modelling.

SuAnn Song