Retirement incomes can and must be designed to bend with our changing needs in later life27 November 2015 Back to results
It’s nearly eight months since the new pensions freedoms came into force and still I think there’s more that we could be doing as an industry to make sure clients get the best out of what they offer.
There’s been a huge amount of media coverage on the external factors that can influence what clients could and should do with their pension pot to generate a retirement income, but it’s also important to think about how their personal circumstances could change in retirement and how they’d deal with that.
Living longer in retirement
Recent figures from the ONS show that life expectancy in the UK continues to march on. A 65-year-old woman can now expect to live for almost another 21 years, up from 19 a decade ago. The average 65-year-old man has still got another 18 years left to live, up from 16 ten years ago.
Longer lives mean we’re more likely to experience events that will change our financial needs in retirement and these include the onset of deteriorating health and an increased need for outside care and support.
But it’s not just health factors that will affect our lives in retirement and drive a shift in our financial priorities. Changing social dynamics are also at play and the increasing marriage and divorce rates for the over-60s are a prime example of this.
Whether coping with illness, dealing with the breakdown of a marriage or tying the knot at a later stage in life, there’s a need to understand the impact these events will have on clients’ financial priorities and to make sure their retirement planning strategy can cater for them.
Guaranteed retirement incomes
Research we carried out in August of this year with the Aegon Consumer Panel confirmed the need for this flexibility and 85% of investors said they wanted the ability to change their plans in retirement. But 72% also told us that at the same time they wanted some form of guaranteed income in retirement.
In short there’s both a demand and a requirement for an alternative to the lack of flexibility offered by annuities and the total flexibility but lack of income guarantee provided by drawdown. Exploring the role that guaranteed income products have to play is, therefore, essential when it comes to planning strategies that will work for clients throughout their retirement.
The new pension freedoms have made it easier to marry flexibility with certainty when it comes to generating a retirement income. Using guaranteed income products it’s possible to negate the downside of investment risk but let clients enjoy the upside if their investments perform well. They’ll also retain full access to their money if needed.
The future might not be certain but that doesn’t mean clients have to settle for an uncertain or inflexible income in retirement.