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Billy Burrows: Do your clients fit the old assumptions for retirement?

I have always said that the key to understanding the retirement market is to look at the market segmentation.

Up until now I have analysed the market into three segments; small pots, middle Britain and fat cats, with those with small pension pots buying conventional annuities, the fat cats investing in drawdown and middle Britain needing something in the middle.

However, following the publication of The Great British Class Survey from the BBC in conjunction with academics from the Universities of Manchester and York it may be possible to segment the retirement market in a more sophisticated way.

The survey identifies seven social classes; elite, established middle class, technical middle class, new affluent workers,traditional working class, emergent service workersand precariat.

Entry into each class is determined by looking at economic capital, social capital and cultural capital.

Understanding the attitudes and behaviours of these groups is important as they will be investing in annuities and drawdown in the future.

If we ignore the precariat class, which is described as a financially deprived group and therefore we would not expect them to have private pensions, and the emergent service workers, because they are younger people who are far from retirement age, there are five classes that are of interest to those analysing the retirement market.

  • Elite class is the wealthiest and most privileged group in the UK, representing just 6 per cent of the population with an average age of 57.

  • Established middle class comprises 25 per cent of the population with an average age of 46 and is the second wealthiest of all the class groups.

  • Technical middle class accounts for 6 per cent with an average age of 42 and is a prosperous new class group.

  • New affluent workers comprise 15 per cent with an average age of 44.

  • Traditional working class accounts for 14 per cent of the population, with an average age of 66. Although this class group scores low for economic, social and cultural factors they do have some financial security.

I make generalisations cautiously but it might be fair to say that the traditional working class accounts for the bulk of the small pension pots but they only account for 14 per cent of the population.

The established and technical middle classes account for 31 per cent of the population and they should have above average sized pension pots. This suggests that the middle Britain cohort of investors who will be looking at annuity and drawdown options may be larger than many people appreciate and certainly looks set to increase over time.

I can identify many of my past and present clients with these class types; the sub post master and plumbers are probably new affluent workers, the university lecturers and pharmacist are probably in the technical middle class and the engineers and surveyors are in the established middle class.

Although every client is different I can spot some common traits such as an appetite for an informed discussion about their objections, a healthy scepticism about financial services and the desire to get the best outcome. One thing they have in common is above average sized pension pots.

My argument is that those with above average sized pension pots should not necessarily invest all of their pension funds into guaranteed annuities because the rates are so low and their more complex lifestyles require retirement income products with more flexibility. This means that other options such as investment linked annuities and drawdown should be taken more seriously.

If the number of middle class people reaching retirement is increases it is more important than ever they are given advice about the full range of options because If the middle classes want to continue getting the most from their social and cultural capital they will need to have the right type of pension income.

Billy Burrows is director of The Retirement Academy

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