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UK savers banking on ISAs for most of their retirement income

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More than one in three UK retirement savers are planning to rely on ISAs for the bulk of their retirement income but there are real worries about the lack of savings choice, research from MetLife shows.

Its study found 34 per cent of savers are looking to ISAs to deliver the majority of guaranteed income in retirement highlighting the growing interest in exploring a wide range of options to deliver certainty and flexibility over funds.
 
Even among over-55s who are in the run-up to retirement, more than a quarter (28 per cent) are considering using ISAs.
 
However, the research reveals real worries about the lack of awareness of available options for ISA savers – more than two-thirds (66 per cent) only save into cash ISAs and just 10 per cent say they are happy with the rates they receive and more than half of cash ISA savers (55 per cent) are dissatisfied with their rates. Best fixed-rate cash ISAs currently pay around 1.75 per cent – just above inflation.
 
The increased interest in ISAs for retirement planning is being driven by a switch in attitudes following the launch of pension freedoms and increases in subscription limits with financial advisers welcoming the new flexibility.
 
MetLife’s study found 63 per cent of retirement specialist advisers have changed their recommendations on using ISAs for retirement planning. Around 21 per cent of pension savers say they are making more use of ISAs for retirement planning following pension freedoms.
 
But MetLife is warning that a lack of real savings choice means that people are unaware of some of the options available to boost their pensions.
 
Simon Massey, wealth management director at MetLife UK, says: “The increase in annual ISA subscription limits from GBP15,240 to GBP20,000 in April this year highlights how much can be saved tax-free and makes them a real option for retirement planning.
 
“But it is worrying that with so much ISA saving focused on cash ISAs that so few savers are happy with the rates they are earning. However, it’s understandable than many are nervous about investing their money in a traditional stocks & shares ISA when markets are uncertain.
 
“The ISA market attracted more than GBP58 billion in contributions last year and the rise in contribution levels will provide another boost, but there has to be real choice aside from the higher return but riskier stocks & shares ISAs and the low rates of cash ISAs.”
 
MetLife’s Guaranteed ISA comes with an income or capital guarantee enabling savers to benefit from greater certainty over their investments or future income while still having the potential for growth.
Savers benefit from a guaranteed income for life or guaranteed lump sum at the end of a chosen term, regardless of market fluctuations. Savers also retain access to their funds when they are needed and are provided with a guaranteed death benefit. The initial minimum investment in the Guaranteed ISA is GBP15,000.

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