Getting people to think about and plan for their retirement is a common challenge for the financial services industry.
Retirement planning is a complex subject for many customers to engage with.
Even when approaching and entering retirement, Legal & General Retail Retirement's research shows customers are not spending nearly enough time thinking about how they want to use their pension.
The most shocking fact remains that today’s over-55s are spending more time buying a car than deciding how to use their pension.
There’s truth in these observations of course, but we should consider another possibility too: that it is the way our industry talks about retirement that fails to engage customers, and that our approach to pensions planning does not meet modern needs.
The average UK population is not likely to reflect most financial advisers’ client bases, who tend to be in the higher socio-economic groups.It could be that the real problem with retirement planning is not that pensions are too complicated, but that retirement itself is not simple anymore.
Longevity’s the least of it
Perhaps the easiest way to illustrate this is to think about how a typical retiree has changed in the past few decades.
Most obviously, we all know the modern pensioner will probably live longer.
A man turning 65 between 1985 and 1987 could expect to live another 13.4 years.
Three decades later, his son reaching the same age can expect to live more than five years longer than that. But living longer may be the least of the changes they face.
Consider the other ways our lives changed in that time:
- The 1980s retiree has had one or two employers in his career and a final salary pension. His son has had many more jobs, some offering pensions and mostly offering only defined contribution schemes.
- And he is quite likely to be a she. The female employment rate in 1987 was 59 per cent. In 2017, it was more than 70 per cent.
- Mandatory retirement and simple state pension ages meant that most people knew exactly when they would retire. Now, those reaching 65 are much more likely to still be in work. Our research found that almost two-thirds (61 per cent) of Britons expect to work in retirement.
- The modern retiree can expect to live longer, but they can also expect to be unwell for longer. “As life expectancy increases, so does the amount of time spent in poor health,” according to the Office for National Statistics.
And those are only the traditional measures we look at.
What about the increase in divorce rates, for example, with many retirees having financial commitments to a previous spouse?
Or the increase in later life borrowing?
Or the rise of the 'bank of mum and dad' as more of our children need help onto the housing ladder?
The point is not that we have got to update our tables and statistics; it is that the averages no longer apply – if they ever did.
Apart from anything else, the average UK population is not likely to reflect most financial advisers’ client bases, who tend to be in the higher socio-economic groups.
Our predicted view of the survival of a healthy 65-year-old man in this group is 91.
Perhaps more importantly, he has a one in four chance of living to 95 and a one in 10 chance of living to 99.
No more silver surfers
In fact, the biggest change to retirement cannot be quantified.
It is not about numbers; it’s about attitudes and how people increasingly see retirement – and the later years that it fills.
Those reaching retirement age are unlikely to see themselves as old, much less identify as “pensioners”, with all the baggage that the term brings.
As retirements have lengthened, the opportunities have grown.
In the last century, it was characterised as retiring from something. Today, it is more about retiring to something.
It no longer makes sense to look on these years just in terms of gardening, golf and cruises, all funded by a company pension.
Plans, hopes and ambitions will vary radically between people.
They could include all those activities traditionally associated with retirement – or the individual may be looking to continue their career into their 70s or 80s.
Moreover, the financial needs of these years will change radically over time even for the same person.
Many retirements are now characterised by an early period of higher spending, for instance, which decreases as the individual or couple becomes less active, followed by a rise again as care needs increase in old age.
But the reverse is also possible (as the person continues to work, then retires fully and finally becomes less active) – or anything in between.
The right questions
The truth is, it is just not realistic anymore to try to put a single label on the period of life that spans from 65 to 95, and to expect a pensions product to meet the vast array of financial needs over that time.
That not only has consequences for the products we consider, but also the questions we ask for clients: Will they be working?
Will they draw the state pension or defer it?
Is an annuity or drawdown right for their needs?
What role will their home play in providing funds for retirement?
What commitments, dependencies and borrowings do they have?
And it also changes the way we talk about these years.
The changing face of retirement means it is time to put to rest the stereotypes around “silver surfers” and those in their “golden years”.
Instead, we need to embrace the full spectrum of retirees, and consider the rich variety of lifestyles, goals and dreams our clients have of a more colourful retirement.
Emma Byron is managing director of retail retirement income at Legal & General Retail Retirement
