Contrary to popular belief, we have not yet seen the real wave of post-War babies reach their 60s – and millions have deferred DB pension wealth
Something significant is about to happen that will affect all those involved in the giving of advice in the UK from 2020 onwards.
In the five decades following the 1960s, this country went through a unique period in pension history, which saw many millions of employees accrue vast amounts of assets in defined benefit pension schemes.
That is something that will never happen again.
Indeed, we have since seen the somewhat inevitable shift to defined contribution schemes, at the same time as legislation has come about which severely limits the amounts both employers and employees can save into pension arrangements.
There has also been an unfortunate trend in employers drastically reducing their pension contributions on switching from DB to DC provision.
However, those that have already accrued DB pension assets – assets that, for many ordinary people, may be their most significant financial asset, worth more than even the houses they have spent their lives purchasing – now have some big decisions to make thanks to the introduction of the pension freedoms.
Put simply, millions now find they have additional rights and options relating to these assets.
Something else is happening, too. In the years following the Second World War, there was an increase in the level of births – known widely as the baby boom.
But contrary to popular belief, the baby boom that occurred in the US between 1945 and 1960 was not replicated in the UK. Indeed, short of a slight increase in UK birth rates in 1946 and 1947, there was actually not much unusual about them in the late 1940s or the 1950s.
That is not to say we did not experience our own post-war baby boom – we did. But it did not happen until the 1960s. And when will those baby boomers reach their 60s? In the 2020s, of course.
With such a large number of people reaching their 60s at the same time as millions of them with deferred DB pension wealth are granted more options with regard to it, there is going to be one big increase in the demand for complex advice.
Advisers will not be able to offer holistic advice without taking account of the various new options they now have regarding what, for many, will be a significant lifetime asset.
This is something that needs to be taken more seriously by both our industry and by those in government before the real baby boomer wave hits in the next few years.
Steve Bee is director at Jargonfree Benefits