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We need to change the way we talk about retirement.

If demographic projections are to be believed, we are an ageing population. It was recently reported that by 2050, 1 in 4 people in the UK will be over the age of 65. That sounds ok until you realise that, of the other 3, a large proportion will be in education or unable or unwilling to work; and that those who do, will carry the burden not only of supporting themselves but also doing their part in delivering the tax receipts necessary to fund education, healthcare, welfare, defence et al.

If that is indeed the future, how will the state also provide a universal old age pension? Many people believe that it cannot.

As a society we have a rose tinted view of retirement; a view built on the retirement experience of our parents and grandparents; those generations lucky enough to have lived and worked during the era of defined benefits, an era now in its final death throws, a victim of merciless reality. Without care, our experience of retirement will be frighteningly different.

Since George Osborne announced his pensions shake up in 2014, there has been talk of the birth of a “new style” of retirement; not only of people retiring later but, more importantly, phasing their retirement through a movement to part time employment or taking another job in retirement to supplement income. 

Why? Because we simply haven’t saved enough. Pure and simple. 

In the euphoria of pre-crash consumerism, in the belief that the money would never dry up, we didn’t all plan for the future. But these new models of retirement make huge assumptions. Who says we’ll all be able to work longer? Won’t our children and grandchildren, those, post education, who have a right to have dreams and ambitions of their own, have something to say about that? And to think that’ll we’ll all be able to get a part time job in our dotage is a little optimistic. Current experience should already put paid to that notion.

"So, straight away, we have to start accepting the truth about retirement; and it’s not going to be pretty for all of us."

We need to start looking at the situation as it is; that auto-enrolment, the new work based pension scheme is a starting point and nothing more. We are not all going to be able to become “amateur landlords” going forward (and imagine the problems it would create if we tried!) and that if we are to stand a chance of making our wealth last, we’re going to have to start treating our retirement saving as our number one priority. 

Making “it” last. That’s going to be the challenge, and when we talk about “it” we shouldn’t think about money, we should think about lifestyle; the continuance of the ability to keep ones’ home, to run a car, enjoy a holiday and maybe go out a couple of times a month. Retirement was never supposed to last 30 years or more, it was all supposed to be over quite quickly; and, if our reality is now that during our working lives we have to build a fund that can sustain a lifestyle for the long term, our challenge and opportunity is not only to advise, encourage and create effective long term investment programmes “pre-retirement” and “at retirement” but also “through retirement”. In short, we need to create “whole life” investment strategies.

If we assume that drawdown will become the fashion and that annuities remain unfashionable we will need our retirement funds to not only deliver sustainable income for the long term but also real growth. It is the only way to stop us running out of money.

To that end, the traditional model of “de-risking” at retirement may be defunct. Rather than relying on a more defensive strategy in retirement to provide stability, the answer may be to remain invested in the equity markets, taking advantage of the opportunities offered there. Over the longer term equity markets have always performed better than the mainstream alternatives and with that being the case, if we are now to remain invested for the longer term, it is those markets which may provide the solution.

People shouldn’t fear investment risk, they should understand it; and alongside the need for clear, no nonsense communication about the importance of retirement planning we must ensure that they do. 

If you are approaching retirement and would like to find out more about the options available to you once the rules change in April, or if you want to ensure your pension savings are on track to provide the retirement you expect, please get in touch with your financial adviser. If you don't have a financial adviser please email letstalk@sanlam.co.uk and we will be happy to help.

Date issued: 26.02.15

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependant upon individual client circumstances and may be subject to change.

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Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.