The pandemic has created some anomalies in the statistics that are yet to coalesce into a clear picture, but overall, this trend seems likely to continue. The workplace is more flexible and more accommodative of older workers. It is notable that many people working beyond state pension age are either self-employed or working fewer than 16 hours per week6.
The IFS adds: “First, each successive generation approaches retirement with greater labour market attachment, work experience over their lives, and education than their predecessors…We would expect these patterns in general to keep people in work for longer, pushing up employment rates. Second, the state pension age is rising from 66 to 67 between 2026 and 2028. Given the strong rises in employment for 65 year olds seen as a result of the recent increase in the state pension age from 65 to 66, it would be surprising if this did not act to push up employment further.”
The end of the sole breadwinner
Another consideration is that the sole breadwinner household is not necessarily the norm. The percentage of UK households in which the female partner earns more than the male partner has steadily risen from 19.8% in 2004 to 23.3% in 20197. This means many households will have two pension pots to draw on, but it may create complexity for advisers. Those pots may have been managed in different ways and each party may have a different approach to managing their wealth.
There are other elements that also mark the next generation of retirees from this one, which will create complexity for advisers in building retirement income solutions: mortgages are extending into retirement, for example, so advisers may need to factor ongoing mortgage and maintenance expenses into cash flow projections. The next generation’s parents are living longer, which means they may not receive a timely inheritance to boost their retirement plans, and may also have caring responsibilities.
Retirement strategies need to evolve
There is no one solution that solves the problem. In our report ‘Life Beyond Work: The Changing Face of Retirement’, 56% of advisers astutely say that flexibility would grow more important over the next three years8. Equally, many believe there is a need for providers to step up. One adviser comments: “There’s a gap in innovative solutions, able to blend the guarantees of annuities with the adjustable income benefits of drawdown.” That’s going to be a problem for the next generation of retirees, who will need agility.
Pairing annuities with drawdown, using packaged provider solutions, or using protection overlays could all be part of the solution. Cash flow planning will become even more important, creating personalised projections to reassure clients by demonstrating how choices influence outcomes.
