People in that generation now ending their years in the workplace should be aware of proper retirement provision, says Derek Young
We are now well in the midst of the retirement of “baby boomers”. Seen as a lucky generation, many of them have benefited from a free NHS, a favourable jobs market and affordable housing, with some also enjoying free university education. Some have been lucky enough to enjoy defined benefit (often called “final salary”) pension schemes.
But not everyone, in the words of former Prime Minister Harold Macmillan, has “never had it so good”. The impending retirement of many baby boomers has led to a seemingly continual set of increases in the State Pension Age, which has also diminished in value from a quarter of average earnings to merely a sixth in the past 30 or so years, and the closure of many of the more generous private schemes. Many people in their 50s and 60s believe that their health and finances are largely outwith their personal control, which leads to uncertainty about the future.
Almost everyone in this generation agrees that life used to be simpler. The savings and investment market seems saturated with an alphabet soup of products and options – from SIPPs and SERPS to PEPs and ISAs – which also seem to change frequently.
Yet despite this uncertainty and complexity, too few people are taking steps to make themselves better prepared for retirement. Two-thirds of people across the UK do not take professional financial advice – a figure which has recently increased.
This could be simply a case of hoping for the best, or because perplexing or concerning financial news – such as scandals around the “mis-selling” of personal pensions and endowments – makes people more reluctant to invest. Whatever the cause, the results are worrying. Research published by Age UK last month found that around a fifth of men and two-fifths of women aged 55 to 64 have no private pension entitlement, and half of these women have a pension fund equivalent to only £25 a week or less (UK figures).
For future generations, the advent of automatic enrolment in workplace schemes should encourage better pension saving, but this has less impact on those preparing to retire in the next few years. By contrast, recently announced changes in private pensions – removing the requirement to purchase an annuity – have raised concerns in some quarters that people might be tempted to splash out on luxury purchases or (more likely) will underestimate how long they will live, creating a risk that their hard-earned nest egg will be used up too early.
Age Scotland and its partners are doing what we can to help older people understand what might happen and what options they have.
From the start of July, Age Scotland will continue the work of two organisations – the Scottish Pre-Retirement Council and the Tayside Pre-Retirement Council. Together, these organisations have more than 80 years’ experience in training those approaching retirement on the changes they may face. Topics covered range from what to do with a sudden increase in leisure time, finding new challenges and purposes, and staying physically fit and mentally alert, to making and staying in touch with new companions and finding other ways to achieve the senses of belonging, achievement and usefulness which work brings. Crucially, though, there is a strong emphasis on financial planning and keeping a decent standard of living as you move from a working income or salary to a pension.
Our partner, Age UK has also recently advocated regular check-ups – “Financial MoTs” if you like – at key stages to help those who are, or who about to, become retired to navigate their later lives successfully. Even with good preparation, shocks and changes can come along – such as ill health, care needs, bereavement or divorce – and derail plans overnight. With retirement now routinely lasting 30 or 40 years for growing numbers of people, a single plan may not be best, and older people should be encouraged to develop greater financial resilience.
Later life also offers some financial advantages, ranging from the national concessionary fare scheme to winter fuel allowance and free TV licences. Financial products such as insurance might become cheaper if people have a positive history, and indeed some options are emerging exclusively for older people.
Getting older is one of the most predictable things in life, but not thinking about it, or not preparing for it, is highly unlikely to be a successful approach, especially as society will see more older people and more of them living for longer, with the consequent pressure on public finances and services.
• Derek Young is policy officer at Age Scotland www.agescotland.org.uk