Growing old gracefully may be something to which we all aspire but growing
old comfortably is going to require a wholesale change in attitude.
The financial services industry cannot afford to be complacent. The old
are getting older and are getting more demanding.
Everyone recognises that we are living longer but few appreciate by how
much. One estimate I saw recently brought home this truth to me. A quarter
of men now aged 60 will live to 90 while a quarter of women now aged 60
will live to 94.
Retirement is no longer those few years after we stop work and before we
die. The 30-year retirement is here to stay. Retirement is now des-cribed
as the Third Age. After the Learning Years and the Working Years come the
This is no passive twilight zone, it is a period of physical and financial
activity for the over-55s who control an estimated 80 per cent of the
country's wealth. These are serious players in the money stakes and demand
to be taken seriously. They are a hugely important market segment and need
some very careful handling when it comes to financial advice.
Like every other 30-year period in life, it will be a time of profound
change as clients progress through it. The first thing to note is that it
is an extremely long period of time, so needs and attitudeswill change
greatly over the years. The obvious changes are easy to predict – our
clients will become more risk-averse and, sooner or later, their health
will deteriorate. So will the mental capacity of some.
Another certainty is that they will all enjoy the benefit of hindsight and
probably be very vocal with it. Hindsight may be a wonderful thing but in
this case it will highlight just how profoundly different life's essentials
are at, say, 78 than they seemed to be at 58.
At the point of retirement, control of capital and inheritance planning
are often the priorities. At 78, income and the fear of running out of it
will be paramount. If only the sea-change in sentiment had been forecast at
retirement. If only the financial adviser had explained the realities of
The need is for flexible and sustainable income. Yet we are faced with
uncertainty around just how long any single individual will live. Using
actuarial speak: “The prob-ability of living more than one standard
deviation beyond the life expectancy is around 15 to 20 per cent dependent
on age.” In plain English, the most likely solution to the need to provide
each individual with a secure income for life will involve an element of
insurance, in other words, some form of annuity.
But this income will need to change over the years. Immediately following
retirement, physical and financial activity is likely to be high. Later,
the pace of life may slow down a little and the need for income with it.
But then, medical attention will demand an increased income as they reach a
ripe old age.
Flexible income is going to be very desirable for those who can afford it.
Having saved up for retirement using equityand property-based investments,
it makes sense to continue to use equities in retirement. One of the
criticisms of traditional guaranteed annuities has been the inappropriate
nature of fixed-interest investments for a long retirement.
Access to equities and the ability to change investment holdings over time
are clearly also needed, not least to match investment risk to a steadily
increasing aversion to risk.
It is more than just mak-ing the actuarial calculations more
understandable. What is needed is a fundamental change in the way we think
about retirement in the UK. Instead of preparing to die, we should be
planning to live.
The preoccupation with death benefits at the point of retirement would
then be balanced with a much healthier interest in generating the income
necessary to really enjoy the retirement we have worked long and hard for.
Non-pension savings and domestic property should be thought of as the
means of providing an inheritance for the kids and pension funds used for
what they are intended – to provide an income for life.