When I consider my grandparents' latter years and contrast it with my parents' retirement, I am always staggered at the difference. Their health; their expectation of longer lives; their activity and their wealth in retirement are all very different. Those coming to retirement now will also have a different approach to retirement, reflecting their experiences and position in life.
If society is changing at such a fast rate, then the UK needs to update its view about how we are to fund the different phases and needs of our retirement.
People in their 50s and 60s face new choices and different life decisions from the previous generation. They also face new challenges. In general, they haven't saved enough, and many haven't planned for retirement. They face increasing longevity, and although they probably realise that they will live for longer, they may not appreciate how much longer they will live, or its consequences for their finances in retirement. They also may not understand that they face a greater chance of spending some time in ill health and needing support. Finally, people want a different lifestyle, and have very different retirement goals and attitudes from previous generations.
We are moving away from state pension age providing a signal to retire. Instead, people are more likely to decide when to move into retirement based on their current income and proposed income in retirement, and whether they can afford to retire fully, or alternatively if they want to work part-time. Some people may feel that they do not want to give up the social contact associated with work, and some may want to retire now to enjoy life before ill-health sets in. Of course, some people may not have the luxury of deciding when they want to retire - and instead be forced into it through ill-health or redundancy.
Generally, I believe people are aware that they will have several different needs and aspirations in retirement. For example, they will need a guaranteed income that can cover the basics - food, housing, energy, and fuel - but they will also want another reliable source of income so they can have some 'extras', such as a meal out or presents for the grandchildren. There is a growing awareness that some may need a contingency fund to pay for support for ill-health later on. Of course, if there is any 'left over', some people want that money to go to help their children or grandchildren.
The problem is often people haven't built up enough assets to meet all these needs. They may have built up a pension plan but that will only cover a guaranteed income, or possibly a lump sum as well. People have to prioritise the best way to meet all their needs with limited, and often inflexible, assets.
Collectively, industry, government and other stakeholders need to take action. First, we need to carry out research to really understand what is happening, and how people approaching retirement frame these decisions and what points of reference they use. Second, we need to use this research to take a deep breath and rewrite the retirement rulebook, devising a second A-Day, to change the rules. Finally, we have to help people make these difficult decisions by widening out access to advice, and providing the right help for them at the right time.
The issues and debates surrounding retirement have changed dramatically. We now have an opportunity, by thinking big, to break from the past, and forge a better future for our customers.
Annual, tapered, money purchase …
As boss Tim Orton exits
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