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Pensioners with attitude

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

Golden Years.

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&#39s 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&#39s 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

increased longevity.

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.

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