Firstly, some facts for you. A healthy active life that exercises body and mind will usually lead to a longer healthy life and a more enjoyable retirement. Yet continuing to work while unable to do so due to ill health or disablement is likely to aggravate the condition and have the opposite effect.
Advances in technology are reducing the job opportunities for those who want to work later in life. Over half of the population have less than £100K in their pensions when they retire. Many financial advisers are not interested in servicing those with investible assets below this amount. They are not seen as profitable clients.
Income from £100k, whether from an annuity or drawdown, when added to a State pension is unlikely to provide the retirement that most look for. They will therefore need to consider working longer.
This is beginning to sound like the nursery rhyme, ‘There’s a hole in my bucket, dear Liza’.
Retirement is unpredictable.
When he was 62, Geoff had done his sums and believed that if he worked to age 68, he would have a fulfilling retirement. However, the following year he was made redundant. He was unable to find the work he wanted and age 65, he was diagnosed with a combination of diabetes and rheumatoid arthritis. His opportunities for work were further reduced. Geoff missed out on six year’s pension savings and had to draw on those he had acquired for six years longer than planned.
Geoff’s situation makes the point that as with other things in life, in retirement, or in his case when planning retirement, nothing goes to plan You never know what is around the corner.
This is where housing wealth comes into retirement income planning. 70% of pensioners own their homes. Therefore, they have the possibility of using their housing wealth to augment their pension savings. The fact that the vast majority have insufficient pension savings will increase the need to call upon housing wealth to deliver their desired retirement. However, this is more likely to be a reaction to an event occurring, i.e. a need to pay off debt, or meet a major expenditure, rather than part of a planned strategy.
If someone uses an equity release plan, their adviser will ensure the product is suitable to their needs and other possibilities have been considered. If they downsize, who does the same? Yet a common need for equity release is to extend the home after downsizing to a home that is too small for their needs. This shows the disconnect between retirement lifestyle planning and retirement financial planning and shows why many are not getting the services they require.
Vitality has introduced new angles on life and health assurance. A Vitality policyholder receives incentives to follow a healthy lifestyle with discounts on activity trackers and health clubs. It is obvious why this is in the interests of the insurer.
I cannot however see an annuity provider offering similar discounts. An income drawdown provider may see that the longer their clients lives, the longer they will hold funds under management and receive fees. Healthy ageing could also see a reduction in the withdrawal rate as the drawdown holder considers they will live longer.
Also, while fitness trackers and health club membership will appeal to the middle-aged and younger customer, will they appeal to those who are older? What add-ons could appeal to those who are approaching, or in, retirement?
Let’s try to resolve the ‘hole in my bucket’ dilemma and with some potential benefits. What about access to an employment agency that specialises in older employees? If this had been available to Geoff would he have been able to extend his working life? Even if it was not for as long as he originally desired.
The other gap is financial counselling. The events that could occur and need to be covered are the transition into retirement, entitlement to a State pension, full retirement; divorce; marriage; receipt of a windful (e.g. inheritance); major outgoings; care provision and funding; or death. The impact of many of these events on a partner will also impact on the individual. Apart from the initial move into retirement, PensionsWise would not be able to help with many of the subsequent events.
We are moving on from an era where at a fixed age people retire, an income was received, and they were expected to live off that income until they died. A lot more information is required from those who are approaching, or in the early stages of, retirement. Their numbers are increasing.
Will they also expect such services? Employee well-being services are becoming more common in the workplace. If you are used to something when working, will they not expect to find something similar in retirement?
This leads to the question: who will provide such services? I would not expect a product provider to do so. What is in it for them? Also, would consumers trust the independence of a product provider unless they provided the full range of product options?
Like the nursery rhyme, we can go round and round in circles trying to resolve the issue of having a hole in a bucket. The hole being the large numbers who should be seeking retirement advice but do not. At the end of the day, something extra is going to be required in the form of additional services, and they need to be provided by advisers.
Bob Champion is chairman of the Air Later Life Academy