Speaking at the Eurofinas Conference in Athens (7 October), Cicero Executive Director Mark Twigg considered how the prospect of a rapidly changing retirement market has implications far wider than the pensions market.
How people in old age spend their money, and how they finance that spending, is changing. People aspire to continue to enjoy a consumer lifestyle throughout their retirement, much of which presents new opportunities to access various forms of consumer finance. Cicero Research shows that globally, two-thirds of us aspire to travel widely once we have stopped working while as many as 1-in-5 people intend to make a large purchase like buying a new car. While our incomes might not be able to sustain this lifestyle in retirement (given the failure to save sufficiently via pension products) it may be that our homes – often a person’s largest asset by the time they enter retirement – can provide the necessary collateral, as long as these people can access the appropriate products.
Older people are becoming more exposed to consumer credit, and they are more likely to spend their later years indebted to some extent. According to research undertaken by Cicero, around 1-in-3 people in Britain expect to still have the mortgage to pay off once they have passed the age of 65.
During our working lives (our savings ‘accumulation’ phase) this growing debt is likely to have a two-fold affect on retirement prosperity.
Secured lending like mortgage debts will at least leave people with a sizeable asset, which through equity release and other forms of lending targeted at the retirement population, could help asset-rich, cash-poor pensioners to fund their retirement. Unfortunately, consumer trust in equity release products remains low and many of the products available, which are much more costly than standard mortgage products, look unattractive to many over 55s.
Unsecured lending can act like a double edge sword cutting people during their working lives and then again in retirement. During working lives, it potentially ‘crowds out’ long-term savings stopping people from saving for their retirement. Countries which have a larger reliance of student loans to help pay for higher education costs demonstrate the scale of the problem. Sweden, which has the highest levels of student debt in Europe, also has the highest numbers of people put off saving for retirement as a result. As many as 1-in-8 Swedes aged 45-54 say that student debt stops them saving for retirement. Policymakers need to beware the long-term impact of leveraging students’ finances if they are also wishing to promote greater financial self-reliance in old age.
Unsecured lending is also unlikely to leave the individual with an alternative asset (like a property) at the end of it. So they have no means of securing alternative sources of income in retirement.
In addition to credit, expenditure patterns are also likely to be impacted by the growing need for social care in old age. With 1-in-3 people reaching the age of 90 requiring social care, it is worth considering that 1-in-3 people born today are expected to live to their 100th birthday. The demand for social care is only going to go one way.
Future advances in medical science may help to cap the costs associated with degenerative diseases in old age. But it is worth highlighting that even with previous medical advances, the gap between life expectancy (the age at which a person can expect to die) and health expectancy (the age at which they are likely to enter periods of ill health or frail retirement) has grown with the result that people now spend a greater part of their lives not only living in retirement, but living with ill health in retirement.
Another potential game changer is the potential impact of technology. Wearable (and ingestible) technology may help people to better identify pre-chronic medical conditions, and better manage those conditions during their adult lives to help reduce the worse impacts on health in later life.
Whatever may happen in terms of debt, health, and technology, one message is clear: the future of retirement will involve having to save more and work longer before people are able to retire.
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