I thought The Who song would be an appropriate title for my first blog for IFAonline . When Life Trust launched in January I think there may have been many IFAs asking "who?" However the impact that increasing longevity is having on the retirement planning landscape was not something of an unknown at all.
On the whole, advisers know that people are living longer, and are only too aware of the implications this has to their clients’ portfolios and the value that they will receive in retirement.
Not a week goes by without some coverage of the growing pension crisis and further speculation about the rising longevity curve. The latest statistics from the Office of National Statistics predict that the average life expectancy for a baby born born today is 77 years and 81 for a baby girl. Looking back to the same statistics just over 50 years ago, where a boy would on average live until he was 66 and 70 for a baby girl and you can see why this phenomenon is considered both a challenge and an opportunity.
You may find these improvements significant in their own right, but when you look closer at the chances of people reaching advanced ages you quickly realise the how dramatic these improvements really are. Take a man who is already 65 today, he has a 42% chance of reaching 90, 22% chance of reaching 95 and not an outside chance of getting a telegram from the queen. The chances are even higher for a woman of the same age.
This changing social landscape is dictating a whole new approach to retirement planning. There is a growing need for financial advisers to educate their clients about how long they may live and consider the implications. Rising at just 3% a year inflation will halve the value of a clients level income in less than 24 years, 15 years at 5%. And if recent calculations that inflation for Pensioners is more accurately running at 7% then you begin to see how dramatic the effect of increasing longevity can be.
It is no longer enough for IFAs to follow traditional accumulation strategies to maximise assets and wealth, they now need to consider effective decumulation approaches that can maintain their clients standard of living and protect them against the possibility of outliving their finances as they grow older.
A new risk demands a new solution. Thankfully, when I’m talking about my generation, I am not referring to the 65 year old man in my earlier example but people in their 40’s and 50’s now facing up to the prospect of a longer, healthier life. I am talking too about a new generation of financial planning with longevity providing the opportunity for IFAs to generate new revenue streams, improve their TCF credentials and grow the embedded value of their business. So, much less of the ‘Who’ and much more of the ‘How’.
Mike Tyler is head of strategy at Life Trust.
The views expressed in this blog are those of the individual and not necessarily the company he represents.
Despite improved risk appetite
FOS award limit increase
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Ceremony will take place 13 November