Demographic changes and their impact on planning for retirement

6 min read 27 Apr 20

The information contained in this page is for professional Financial Adviser use only.

It can be hard to think about anything except the coronavirus pandemic at the moment, which is affecting all areas of people’s lives – not least their finances.

But there are other – longer term – trends that have been bubbling away in the background that could also have an impact on your clients’ finances, especially in retirement.  I talked about some of these at two panel debates at the start of year (and how long ago that feels now!) and they prompted a lot of questions and debate.

Increase in women’s wealth

The first trend relates to the way women's wealth is increasing[1] and is a subject close to my heart (before I joined Royal London I created and ran SavvyWoman, a money website for women).

This rise in wealth is down to a number of reasons: more women in senior and better paying jobs; more women starting their own business; more women buying their own home and more women either receiving money through financial settlements in divorce, or inheriting wealth from parents.

But this shift in wealth is a gradual process, and because the amount of money you have at retirement is based on your working life over the last 30 or 40 years, it’s like looking in the rear view mirror. Women starting out in the workplace today may have much better opportunities, but that wasn’t the case 30 or 40 years ago.

Gender pensions gap

There have been various attempts to put a figure on the gender pensions gap, but it’s quite significant. The Pensions Policy Institute estimate that it’s £100,000 – with women in their 60s having around £50,000 in their pension[2] compared to over £150,000 for men.

For many women nearing retirement today, who are married or living with their partner, their partner’s financial decisions can have a huge impact on their own financial position in retirement.

The decisions that anyone faces at retirement are often more complicated than they were a few years ago (as you well know) since pension freedoms were introduced. But it’s not just retirement and pension decisions that are more complicated. Life in retirement itself is more complicated.

Health and life expectancy

Increases in longevity have flattened in the last few years, but we are still living longer than we were a couple of decades ago. And the number of centenarians has increased by 85% in the last 15 years[3].

That’s the good news! However, we’re not necessarily having healthier lives in retirement. According to Age UK, men can expect to live to 63 years and four months in good health and women can expect to live to almost 64 in good health.

How healthy you are as you age will affect how long you’re able to continue working (which becomes more relevant as the state pension age rises). But it may also affect how much help you need and how much you end up spending on help or formal care.

There are currently several hundred thousand people living in care homes[4] and many others receive care in their own home. Paying for care (if you can’t get state funding) can be expensive and understanding who pays for it can be complicated. Should someone set aside money from their pension for their care? If so, how much and how should they invest it?

Bearing in mind that most people, for entirely understandable reasons, have no idea how the current system works in terms of funding if you need long term care – and bearing in mind that people probably hate the idea of “being put in a nursing home” it’s not something many of us want to plan for. But not planning for it can mean important decisions end up being made when things reach crisis point.

Increases in blended families

Another trend we’re seeing is that families are more likely to be blended. That may mean they remarry or that the couple chooses to live together rather than remarry. More couples are choosing to live together[5] and not get married at all, and that may affect how they think about their money.

Getting married or having a civil partnership means there’s a definite event (often an expensive one!) which might prompt couples to merge their money. Living together is often a much more gradual decision, and couples may keep their money separate, may not discuss long term finances in the same way and may not even realise that their partner has quite different ideas about money.

Second marriages can result in tension between the first and second families. This can affect both how money is spent in retirement and how it is passed on after death. There could also, for example, be a pension sharing order which could mean that the ex-wife has a private pension for the first time, or it could mean that the pension the husband or wife thought they were going to retire on has now been depleted because some of it has been given to one partner’s ex.

Rise in single adult households

The increase in ‘non-traditional families’ doesn’t just include second marriages or couples living together. There’s also been a sharp rise in the number of single adult households. Government figures6show that the number of people living on their own rose by 16% to 7.7 million between 2007 and 2017, and that number predicted to reach over ten million by 2039. 

But that doesn’t tell the whole picture. The number of 25-44 year olds living alone actually fell during that period. The increase was solely down to people in their mid-40s to mid-60s living alone – and that number increased by over 50% in a decade. If there are two of you living together (whether or not you think of your money as being pooled) the reality is that there will be more for you to live on and your costs, as a couple, won’t be twice those of a single person.

However, it’s not just a higher cost of living that people who live on their own face. Adults living on their own are less likely to be homeowners6, which has a huge knock-on effect on the money they need in retirement. We know that a number of older homeowners won’t be mortgage free by the time they retire, but some will be. If you rent, you have to find that money month in, month out. And that doesn’t just mean less disposable income, it may also affect what you choose to do with your pension. Rent isn’t something that you can easily cut back on, so you need to know that the money will be there when you need it.

Being single may also affect the type and amount of care you need if you become seriously ill or disabled and who you leave money or assets to when you die. Many single people I’ve spoken to over the years feel that the financial services industry doesn’t have them in mind.

All these demographic changes mean that retirement, and planning for it, is far from straightforward. It also means that expert advice from a qualified independent financial adviser or planner is more important than ever.