March - a milestone month for retirement?

Even before the Budget, and the launch of the Lifetime ISA with its State-backed saving incentives for either purchasing a first property or retirement, March 2016 was shaping up to be something of a 'milestone' month in terms of the history of retirement provision and the policies that determine at what age people retire, how they might save for that retirement, and the whole scope of how we support people in that provision.

Bob Champion
1st April 2016
Bob Champion, LLA, Later Life Academy

Regardless of the market ‘chatter’ the main positive to come from such activity and such stakeholder buy-in is that it appears, at last, that retirement issues are finally being addressed in a relatively coherent manner. Was March therefore the month when we were finally given a glimpse into how we tackle the large problems of the ‘retirement age’?

Certainly, there were a number of announcements, reports and detail to get our heads around as advisers, and to begin our collective understanding of how we support our clients up to, and beyond, retirement. The Budget might have drowned out much of what came before but there were some important milestones. Pre-Budget, for instance, we had the announcement regarding the review of State pension age, with the headlines focusing on a ‘work until you are 80’ angle.

Added to this we also received the results of a two-year Labour Party-sponsored yet independent Review of Retirement Income – this was a 600-plus page report that goes into every area of pension savings. Which, I’m afraid, is its weakness - the assumption that pension schemes are the only way to accumulate wealth to fund retirement income has been brought into an even sharper spotlight by the launch of LISA and the debate about if, perhaps when, this will morph into a more formal ‘Pension’ ISA.

There’s also a fundamental problem with this ‘pension only’ stance and it can be best highlighted by the fact that it found people need to save 15% of their earnings into a scheme to acquire a decent one. The conclusion, from the report, was that Joe Public needs to double the amount that is saved into pensions – how achievable is this and is the pension truly the right vehicle for most to try to do this?

The recommendations from the report, not least that the Government adopts a national retirement savings target of 15% of lifetime earnings, to be achieved through auto-escalation to avoid future pensioner poverty, are sure to ruffle feathers. Although one can certainly see this report informing the debate about the future direction of retirement savings.

And this has to be a fundamental positive of the current debate - the authorities are addressing some of the issues that a population which is living longer creates. The bad news unfortunately is that the decisions made during March 2016, indeed any month, can only change the future. They cannot recreate the past or change past behaviours.

The impact of any changes will therefore be gradual. In the meantime we will have a couple of decades whereby individuals will continue to aspire to retirement lifestyles that their State and private pension income will not be able to sustain. Fortunately, many retirees have wealth in addition to these sources, in fact 75% are homeowners. Those retiring now and for many years into the future will therefore be looking at how they release that wealth to supplement their retirement income from those more conventional sources.

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