Rethinking retirement: 3 implications of rising life expectancy and how to adapt your approach to older clients
Proverbial wisdom tells us that age is just a number, and with increasing life expectancy, this sentiment rings truer than ever.
Advances in healthcare, technology, and living standards mean that people are not only living longer but are also staying healthier and more active well into their later years. As a result, traditional views of aging are shifting, bringing significant financial and legal implications.
In the UK, the State Pension Age is 66, rising to 67 by 2028. The normal minimum pension age (NMPA) – the age at which an individual can usually access their defined contribution (DC) pension without incurring a tax charge – is 55, rising to 57 by 2028.
The latest life expectancy figures from the Office for National Statistics (ONS) reveal that men and women aged between 55 and 67 can expect to live until between 84 and 88 on average.
This means that clients who choose to retire today at the NMPA or the State Pension Age can expect to be in retirement for around 30 years and 20 years respectively.
If they were to exceed average life expectancy, which is more likely among wealthier individuals, their retirement could last over four decades.
Indeed, further data from the ONS shows that in 2021, there were 13,924 centenarians living in England and Wales – a 24.5% increase from 2011. This could mean increasing numbers of clients may need their pension to fund more years of their lives than they worked.
So, what might this evolving demographic shift mean for your clients and your role as a professional, and how can solicitors and financial planners work together to improve the lives of older people and their families?
Read on to discover three implications of rising life expectancy and how they may require you to adapt your approach to older clients.
1. Increased longevity means people may spend more time in ill health
As people live longer, the chances of developing age-related conditions, such as dementia, also rise.
As an example, Alzheimer’s Research UK found that the number of people living with dementia in the UK is predicted to increase from 944,000 today, to more than 1.6 million by 2050.
Additionally, while life expectancies are higher than a generation ago, research from The Health Foundation has revealed there are set to be 2.5 million more people in England projected to be living with a major illness by 2040.
If your clients are likely to spend more time in ill health as they age, it follows that having conversations about their need for an LPA – and for a trusted person to be able to step in and assist if their health requires this – will be more important.
Indeed, a report in legal futures found there was a 28% surge in the number of applications for LPAs in 2023.
However, research by Canada Life revealed that 78% of UK adults still don’t have an LPA.
So, as life expectancy rises, it may be beneficial to encourage more of your clients to register an LPA – perhaps younger than they may expect to – as there is an increasing chance they will need it one day.
To register an LPA, your clients will need formal legal assistance. They may also benefit from working with a financial planner to ensure their wealth is managed according to their wishes if and when they become unable to make decisions.
2. More people may need to plan for care funding
With people living for longer, the demands for social care are likely to rise.
Indeed, a report by The Kings Fund found that the demand for adult social care (including the elderly and working-age adults) has reached an all-time high. Yet the provision of care has fallen. This is largely due to the financial challenges facing local authorities and the costs levied on individuals.
Figures published by Age UK show the average cost of private home care to be around £25 an hour. Residential care costs £800 a week on average, and a nursing home is £1,078 a week, meaning just two years of out-of-home care could cost more than £100,000.
Moreover, Community Care reports that Labour has abandoned the previous government’s pledge to cap individuals’ lifetime liabilities for their care at £86,000 and to raise the upper capital threshold – above which people are charged for their care – from £23,500 to £100,000.
Many older adults have not planned for how they will cover the potential future costs of care. So, without careful preparation, your clients may need to use a larger portion of their estate to pay for them, potentially reducing the legacy left to their beneficiaries.
Research by Aegon found that only 25% of people aged 50 to 59 have considered future social care expenses in their retirement savings plans.
So, with more people likely to need care in later life, it is important that your clients have a watertight financial plan that caters for both their future and the legacy they leave their beneficiaries.
A financial planner could help your client to ensure their and their family’s needs are best met, creating a tailored approach that balances their current financial wellbeing with their long-term estate planning goals.
A solicitor can then assist by ensuring that all legal aspects are properly addressed, such as drafting or updating wills, setting up trusts, and managing any complex IHT issues.
3. Phased retirement is on the rise and pensions may need to last longer
As you read earlier, pensions are an important consideration in the context of rising life expectancy, as they may need to last significantly longer than they once did.
Although the NMPA and State Pension Age are gradually increasing, many individuals are opting for a phased approach to retirement, driven by both financial and emotional wellbeing considerations.
Aegon’s report found that only 27% of people currently in employment expect a “hard stop” retirement. And Employee Benefits reports that 49% of workers aged 50 and above have already started phasing into their retirement by reducing their hours or responsibilities.
As the working culture shifts, there has been an increase in the number of people flexibly accessing their pensions, with a report from Actuarial Post finding that the number of people doing so rose from around 200,000 in 2017 to over 500,000 in 2023. In the same period, the annual value of the withdrawn funds increased from around £1.5 billion to more than £4 billion.
There are several financial implications to accessing a pension flexibly, such as triggering the Money Purchase Annual Allowance or limiting the pension’s tax efficiency for future beneficiaries. So, it is a good idea for your clients to seek financial advice before flexibly accessing their pension.
Moreover, solicitors are likely to be increasingly called upon to facilitate pension access through LPAs or to handle legal disputes surrounding pensions, particularly as the funds will need to last longer.
Get in touch
By working together, financial planners and solicitors can create comprehensive strategies that safeguard your clients as they approach their older years, which may last longer than they once did.
As professionals, we can help create robust estate plans, plan for care, and secure the financial legacies of your clients to protect their beneficiaries, while ensuring compliance with all legal requirements.
To find out more about how we can work together, get in touch.
Email info@fbwealth.co.uk or call us on 0333 1122211.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
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