In focus - Economics

Will our money last us to 100?

Leading experts, including Schroders' Neil Walton and former pensions minister Baroness Ros Altmann, speak to The Times about how savers might cope with the 100-year life.

14 February 2019

Illustration: Andrea Ucini

This article was written by The Times, all views and opinions are those of the publication unless otherwise stated. 

Official data suggests one in three babies born in the UK today will live to celebrate their 100th birthday. And that could be not even close to the end of increasing typical upper age limits, as scientists move from tackling diseases that shorten life expectancy to developing treatments that target the ageing process itself. One recent study published in the journal Nature predicts normal human lifespans could in time increase to 125 years.

It’s good news that people are living longer, of course. But if they are to be happy and fulfilled during their extended lives, they will need to be able to support themselves financially. That will require all of us to think again about how we save and invest for the future. Savings plans such as pensions were developed in another time, when the typical retirement might last only a decade or so; in the future, someone retiring at age 70 might reasonably expect to live for at least 30 years.

Some help is available already: governments offer generous tax relief on pension contributions, while employers will save on your behalf. Starting saving earlier will become ever more important.

But that may not be enough. In a future world where what are today considered your retirement years could constitute almost half your entire life, more radical action will be needed – possibly a fundamental rethink of the boundaries between work, education and leisure.

So we asked the experts: Will our money last us to 100?

No, it won’t

Baroness Ros Altmann, Former pensions minister

Most people are poorly prepared for the effects of rising life expectancy; we need to rethink the way we live our lives. Major social change is required, as current norms such as working life, retirement, pensions and savings are not going to work. Retirement convention often encourages people to aspire to retire ‘early’, with social norms suggesting ‘successful’ people can stop work in their 50s or early 60s. This damages the labour market and, with an ageing population, carries risks to long-term growth.

We may need a whole new phase of life, one of part-time work before full-time retirement (“pre-tirement”?), in which people work fewer days, with more leisure time, but still earn and contribute to the economy, as well as ensuring they have more money to spend later. Lifelong learning, mid-life career reviews and ongoing retraining are all important.

Retirement support is currently focused almost exclusively on pensions, but a pension income will not accommodate social care needs in later life. The fact is, that to be better prepared for 100-year life, it will be essential for more savings and more insurance to cover the costs of years when care will be required.

Yes, it will

Andrew Scott, Professor of Economics, London Business School

Life expectancy has increased by 36 years since the introduction of a UK state pension in 1908. Yet retirement age has barely changed. Given the average level of UK savings, we aren’t prepared for an 80-year life let alone a 100-year one.

The usual response is to adjust the three-stage life of education, work and retirement that emerged last century. Push back retirement age, cut the pension and increase the contribution rate. But a 100-year life requires more than a change in financial planning. There is no financial nudge big enough to deal with it and some of the big changes will have to come from our non-financial behaviour.

A 100-year life requires a 60-year career. That will require breaks, shifts, changes of pace and periods of retraining. This will demand greater flexibility in our lifetime planning – both financial and non-financial. Financing a longer life requires more savings. But it also requires repeated investment in education, health and relationships to support longer careers and healthy ageing. At times the most important investment will not be in your pension plan but in these other areas.

Andrew Scott is co-author of ‘The 100 Year Life – Living and Working in an Age of Longevity’

Neil Walton, Head of Investment Solutions at Schroders, says practically speaking, most people won’t be able to save what they need. 

There’s a growing movement among millennials called “FIRE”: financial independence, retire early. It’s an admirable ambition; the reality, however, is that most young people will face longer working lives.

With the state pension age due to rise to 68, our research suggests you would need to start saving at least 10 per cent of your income each year from age 20 in order to save enough money to live comfortably until 100 during retirement.

But most people don’t start saving that early, let alone at that level. And even if they do, circumstances may not make it possible to keep up long term.

For each year that you delay saving for retirement, or can’t save enough, the proportion of your earnings you’ll need to put aside in the “good years” will increase. The reality is it just won’t be possible for most people to save enough during their working lifetime.

So we’re going to need other solutions to prepare financially for a 100-year life. Many people will have to work longer and delay retirement. As Baroness Altmann mentions, this could be done gradually – by working part-time, perhaps. And in fact, as a society, that might not be a bad thing. This is a valuable pool of talent with a great deal to add to the economy.

And you don’t have to find retirement solutions by yourself – a financial adviser or a specialist retirement fund manager can help make the most of your money. So even if you can’t join the FIRE brigade, you needn’t fear the future.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

- Read more about how Schroders Retirement is aiming to improve the journey for savers.

Published in partnership with The Times Newspaper Limited. View the original article.

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