There is no denying that people are living longer. But while this is great, particularly for those living full and healthy lives, it does raise a lot of questions.
Perhaps one of the most important is how older people are looked after if required, and how that is going to be funded. Could this be answered in the government’s Green Paper on social care due out this summer?
Then there are questions around those wanting to work longer. Some will simply want to carry on working because they can and they enjoy it, but others will do so because they cannot afford not to. How should we deal with this? And how are we to fund these longer lives in the future?
Most people entering retirement need advice on how their savings, investments, pensions and properties can help fund this stage of their life.
The introduction of pension freedoms has given people more choice as to how they can shape their income, which, in theory, is great news. But some of the resulting products and strategies are complex and require ongoing reviews.
And this leads to my point. A whole host of bodies are doing great work in exploring how people can access financial advice and guidance, and developing services and products that are relevant and cost effective.
But what seems to be missing is a recognition that financial literacy decreases with age, as well as a plan in how to address this.
Research by Finke et al in 2011 found that financial literacy falls on average by 1 per cent a year after the age of 60 regardless of gender, education and so on, but confidence in financial decision-making abilities does not at all.
The researchers noted that, although people can still retain financial terms (much like they can recall words for crossword puzzles), the ability to make appropriate financial choices can be impacted.
This could have a serious effect on people who have taken advantage
of the pension freedoms and undertaken any other complex financial planning advice. Which raises more questions:
- How do we judge when this decline may start to have an impact?
- How do we address the issue with clients in a sensitive manner?
- At what stage is it appropriate to consider involving other potential decision makers?
- How do we document these discussions?
- We have all seen the discussions on how to approach the loss of mental capacity but there is not much on the decline in financial literacy.
An easy starting point could be to encourage clients to get a property and financial lasting powers of attorney, as well as a health and welfare one, which will at least sow the seeds for future discussions.
Investment and withdrawal policy statements could also have a role to play. Knowing your client will become even more important, and being with them on their journey, rather than acting on a transactional basis, will also help.
As more and more people are having to take responsibility for their financial situation in retirement, the need to pay attention to their capability is crucial.
Claire Phillips is partner at First Wealth