Orient - The Official Magazine of the British Chamber of Commerce Singapore - Issue 72 June 2019
The Unforeseen Danger of Longevity
By Ashley Jones, Senior Financial Planner, The Fry Group
We spend many years accumulating the means to retire in comfort, but seldom consider how much might be needed to fund our retirement.
Having a pension is something we all agree is important. But do we know enough about the assumptions behind how the scheme is structured and whether it will be adequate for our retirement needs?
When thinking about pensions, one key consideration is how the demographics of the global population are changing. As people live longer and start work later, a significant shift is taking place which is causing policymakers and pension providers to re-examine accepted models of retirement and investment as the proportion of retirees vs. people in work changes.
More living longer
King George V sent the first 100th-birthday message to a British national in 1917. With improvements in healthcare and living standards increasing our longevity, British centenarians now receive a message from the Queen on their 100th and 105th birthdays – and every following year. According to a recent article in The Telegraph, in 2014 the Department for Work and Pensions took on more people to expand the Centenarian Office in Whitehall to handle the increasing work in keeping up with the demand for these messages.
Data from the Office of National Statistics (ONS) shows that in 2017 there were 14,430 centenarians living in Britain and 579,776 people aged 90 or over. The number of centenarians has increased by 85% over the last 15 years – and the impact on pensions and savings is significant.
In effect, the UK is getting older and an older population needs to support itself for longer – yet most people still intend to retire at 65. If you retire at this age, and your life expectancy is 100, you will most likely be retired a year for each year you have worked. This just isn’t feasible: the amount you can save during your working years will not be sufficient to fund a comfortable lifestyle over this longer amount of time.
Late starters
The growth in numbers of people entering tertiary education means the average age of people starting work has increased significantly. In the post-war years the assumption was that working life would bgean at 16. Today most begin work in their early 20s, with even non-graduates entering the workforce at 18 or 19. This means the number of years where income is sufficient to build up a savings plan are being squeezed.
A useful benchmark here is the Old Age Dependency Ratio (OADR). This is the proportion of people aged 65 or older per 1,000 people aged 16 to 64. In 2016 the proportion was 285 per 1,000 and it is expected to shift upwards to over 450 per 1,000 within 30 years.