Clare Stinton, head of workplace saving analysis, Hargreaves Lansdown: “Our King is going to get a lot busier writing birthday cards to those people that live to see their 100th birthday. Last year there were 14,850 people aged over 100 living in the UK.
Women are miles ahead in the race for long life, 12,130 centenarians, compared to just 2,720 men. But men are catching up. There are still just over twice as many women as men over the age of 90, but the gap has been closing – in 2002 there were three times as many women as men over 90.
But while a long life may be on our bucket list, increased life expectancy brings serious retirement planning challenges. Living longer means we need bigger pension pots, and with many people exiting the workforce in their mid-60s they could spend over 30 years in retirement.
Unfortunately, the nation is already under-saving with the most recent data from HL’s Savings and Resilience Barometer showing only 38% of households are on track for a moderate retirement.
It's not just how we build up our pension that matters – we also need to give serious thought to how we draw down that income in retirement to make sure it lasts. Recent FCA Retirement Income Market data showed over 225,000 income drawdown pots had a withdrawal rate of over 8% in a year. While you may need to make larger withdrawals for ad-hoc reasons such as home renovations or a holiday, taking too much out over a long time period will run down your pension and leave you short of money. Someone withdrawing 8% per year from a £200,000 pension could see their pot exhausted by their mid-80s (investment growth 5%pa, fees 1% pa).
You also need to consider the impact of inflation over a long time period - prices will rise and your income needs to rise with it if you are to maintain your standard of living. However, the same FCA data shows over 80% of annuities purchased are level, which means that their income won’t rise with inflation and their spending power will dramatically decrease over the term of their retirement.
Our longer lifespans should prove food for thought for our new Government as it embarks on a big review of the UK pension system. The issue of pension adequacy will be a major issue, alongside ensuring the pension system delivers the long-term certainty people need to save for retirement with confidence.”
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