Caitlin Southall, head of SSAS proposition at WBR Group, considers the impact on pensions and retirement planning when considering the latest data on projected life expectancy, gender and standard of living.
The Office of National Statistics (ONS) recently released the latest national life tables and life expectancy statistics. The report shows that life expectancy is continuing to rise, and the number of those reaching 100 years old or more is relatively stable.
The number of people living to 90 or over is also on the rise, 0.3% up from 2022 with around 611,000 people over this age in the UK. This is broken down by gender with twice as many women (408,000) as men (203,000).
Whilst longer life expectancy can be a positive thing, and reflects medical and societal improvements, the challenge here from a retirement planning perspective is that we have a fundamental issue with pension engagement and saving for retirement. This, longer life expectancy, the ongoing cost of living challenges and tax increases all conspire to increase the need for effective retirement planning to ensure that even a basic standard of living can be achieved in later life.
The pension market has moved away from defined benefit schemes, with a guaranteed income for retirement, and moreover, an income often subject to inflation-related increases for life. For the dwindling number of those that remain, there is a substantial additional cost to employers as a result of longer life expectancy. Defined contribution schemes require more involvement and drive from consumers; however, a complex pension system, lack of education and no long-term pension roadmap all act as barriers to engagement and understanding.
Longer retirements also accentuate the need for more sustainable drawdown and withdrawal strategies – which in turn increases the need for good financial advice during both the accumulation and decumulation phases of pensions.
The lack of a long-term pension strategy will also be detrimental in the context of longer life expectancy. The Government’s plans to include pensions in scope for IHT may have an unintended consequence of putting people off pension saving. Whilst some – particularly higher earners – may still see a benefit from the tax relief on offer, for many others they may be inclined to spend their pension or utilise the seven year rule to gift a ‘living inheritance’ to their loved ones.
There is also a gender consideration within the ONS’s latest data. The gender pensions gap currently stands at around 33%. To put this into context, where retiring men will have an average pension fund of £205,000, by comparison the average woman’s pension stands at £69,000. The ONS’s data shows that there are many more female centenarians in the UK, and that they are more than twice as likely to live to 90 years old or more than men. Of the 16,200 centenarians in the UK in 2023, 13,180 were woman with 2,950 men.
The problem here is evident. Women are expected to survive on a significantly lower retirement income than men, for a longer retirement. For DB schemes, and with retirement annuity products, the pension provision inherited by the surviving widow is often significantly lower than that of the deceased male scheme member. Solutions such as third-party pension contributions made during the accumulation stages of pension building may help to narrow the gap and set women in better stead for retirement.
We have another issue to consider here with respect to the State Pension. There continues to be discussions around whether the current state pensions policy is sustainable. The triple lock in particular is often a point of contention. With longer life expectancies, there will be a direct impact in terms of the cost of maintaining it. Longer retirement means more state pension to be paid out.
Could we potentially see an increase in the already high State Pension Age, means testing of the state pension, or the removal (or amendment) of the triple lock? Whilst the continued increase in life expectancy is not likely to be a trigger for the State pension to be reviewed on its own, it may be a contributing factor.
What is apparent is the need to communicate with clients about their retirement prospects. For those that have engaged with financial advice, this is going to be more straightforward. For those that have obtained no financial advice, this is more challenging. This is made worse by the fact that those with small pension pots are probably far less likely to choose, or to be able to afford, to take professional advice in the first place. Clients need to be aware of their projected retirement comfort based on drivers including projected life expectancy, expected standard of living, health and gender.
Pension dashboards, when they are launched to the public in October 2026, will carry an ‘estimated retirement income’, to provide an idea of what income the person will receive based on current pension levels. This is a great idea, and hopefully people will be able to consider their potential retirement levels from this figure. A word of caution however – pensions dashboards will not show all types of pension wealth held, including SSAS.
Longer life expectancies offer both a challenge, and an opportunity for financial advisers. Particularly with the overlay of the impending IHT changes as well as world events such the pandemic, Russia’s invasion of Ukraine and Trump’s imposition of global trade tariffs, all of which have demonstrated so clearly that there is also a need for advisers to help clients manage both investment and retirement income risk and fund asset volatility over the full accumulation and decumulation phases. Long term pension planning is needed, taking into account increasing life expectancy, to avoid compounding an ongoing issue of insufficient pension saving.
