Hybrid is the third way

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Well, it appears that 50 is the new 40, or is it that 60 is the new 50? Or maybe that – or a variation on the same - is what we all think when we get the wrong side of the big four-0.

Retiring is something that we should all look forward to, a time where work is finished, the children have left home, and you have enough money to do exactly what you have always wanted, and the time to do it in. But for many people, it simply does not work out like that.

One in three retirees wait more than five years for their partner to retire, according to research from Saga Investment Services, with just 7 per cent of couples managing to retire at the same time. In most cases – 88 per cent as it happens – one partner did not financially contribute to help speed up the retirement of the other. That in itself could tell a story, are they looking forward to some ‘me’ time without their partner or spouse there to spoil it for them?

I digress. One in 10 did admit to feeling lonely in retirement, but more than four in five kept themselves busy either with a hobby or by doing some voluntary work, according to the research, with DIY and housework a big hit with 37 per cent of retirees, with gardening (25 per cent), looking after grandchildren (17 per cent) exercising (13 per cent) and even getting a puppy at retirement so they can spend some quality time with a four-legged friend (7 per cent) proving other popular pastimes.

But for those who were not able to retire at the same time, age was not the main factor.

It seems that half of those surveyed said they simply could not afford to retire at the same time, even if they had wanted to or had reached an age where they could.

The problem with pensions is that far too often people do not start saving sufficiently for them until it is too late. Yes, auto-enrolment is set to help this to some extent, but even this is going to leave some woefully short of the amount of money they are likely to need to enjoy the retirement they hoped for.

Pension freedoms have helped to encourage people to look at pensions in a different way, but the reality is they are still tying their money up in a product they cannot access until they reach 55, and although they can take their money at will after this point, they still have to pay tax on any amount taken over the 25 per cent tax free lump sum. For many, having no access to their money earlier is essential, because it provides a discipline they may not have otherwise.

Yet the danger, as always, is that anyone not taking financial advice and thinking about their future logically runs the risk of spending their pension cash long before they die once they get their hands on it, at which point they are in for a pretty torrid time. So the idea of using a hybrid product – with some guaranteed annuity plus pension drawdown built into one package – makes a lot of sense to ensure pensioners have the freedom to spend, but without the added risk of having nothing left to live on in later life.

Retirement Advantage – one of the leading players in this area – did some research on this but the sample, it has to be said, was very small indeed, at only 107 advisers. Still, bearing that in mind, it found that almost eight in 10 advisers have either already used or are considering using a hybrid product as a retirement solution for their clients. Almost one in five advisers were aware of the products but had not considered using them, with 5 per cent saying they had not heard of the products at all.

Now, while that is not really a big enough sample to extrapolate across the UK as a whole, there is clearly interest in this area. For example, Prudential is launching its Retirement Account this week (on September 26) which combines a pension savings account and a pension income account, which allows them to guarantee minimum income levels for a fee. Charges are set to range from 0.25 per cent to 0.65 per cent.

Of course, many advisers will have been encouraging clients to use their retirement pot in a similar way completely independently of these products being created, but the fall in annuity rates has made getting any kind of annuity pretty poor value in the last decade. So whether these retirement accounts become much more popular remains to be seen, but they do have their merits.

But the luckiest pensioners will be the ones who take independent financial advice on how to deal with their retirement savings rather than ‘going it alone’, because with a good adviser they have the best chance of their pension lasting their lifetime.

Alison Steed is a freelance journalist