It’s lifestyling Jim, but not as we know it

I thought I’d take the opportunity. When else could I connect Star Trek with pensions?

Actually I used the line in a recent PMI webinar, in which we were discussing how to achieve better retirement outcomes for members, with the main focus being the impact the pandemic has had on people’s retirement plans. (Admittedly the lifestyling aspect came from a conversation with Sam Brown of HSF in the previous week, although I’m not sure if she is a Trekkie!)

The main point was, have the British public retired the idea of retirement, particularly the traditional approach of moving from full-time work to retirement on any one given day? Has the pandemic accelerated this attitude and how are we re-shaping our latter years?

Pre-pandemic, the Pensions Policy Institute (PPI) published ‘Living the Future Life – the implications of a longer life (July 2018). The PPI noted that there is expected to be a major shift from the traditional three stage life (study, work, retire), to a new multi-stage life, which requires massive and critical shifts in our thinking and life choices, in response to the dramatic increase in longevity.

Then, while we were praying for anything but the ‘B’ word, along came the ‘C’ word. (Be careful what you wish for.)

The Next Generation / Discovery

Financial constraints will always influence behaviours and the economic impact of COVID cannot be overlooked. Many organisations commented on this in the early stages of the pandemic:

• 11% of over 50s have stopped paying into their pension (Sun Life),
• 154,000 have been forced into retirement because of redundancy (LV),
• a You Gov poll reported that 13% of over 55s are delaying retirement because of reduced pot value and
• 11% have had to delay retirement as they can no longer afford to retire (Wealth at Work).

Importantly, with furlough having only recently ended, we do not yet know the full economic impact of COVID, or how particular socio-economic groups will be affected, and in what ways. Many have managed to reduce debt and save more, without having to pay to commute, and so are financially in a better position. Working practices have changed, potentially permanently, and some have realised that working from home is quite cool: 13% want to delay retirement because they have realised they enjoy working (Wealth at Work).

So, to what extent has COVID accelerated the transition from the traditional three stage life to a multi-stage life? In general, we are living longer but has one impact of the pandemic been to instil a shorter-term philosophy? 22% say it has made them want to retire earlier and as soon as they can  (Wealth at Work). Expressed more strongly – The Covid-19 experience has fundamentally altered our relationship with money (Aviva – Thriving in the Age of Ambiguity).

We have recognised the transitional period between accumulation and decumulation, in which many will work part-time etc, although with an expected longer life, mixed with a shorter-term attitude, the transitional period could be stretched over a longer period than anticipated. As many reassess their later life plans, it is lifestyling Jim but not as we know it.

The PPI report states that absolutely key to the mind set shift required for the transition to a new multi-stage life, is our need for more flexibility in our planning, and being open to our final decades looking a lot different than we had perhaps previously envisaged. Our current pension, health and education systems and our labour market are based around the three-stage life. However, the vast majority of those that use these systems will need and/or want to adopt a more flexible, multi-stage life. This suggests we need a new framework of what a good life actually looks like over an extended period, something we must build together as a society, because it affects us all. What’s the point of a target dated fund if the target date for most pension members can be spread over a 15 year period? Also, what does a ‘Normal Retirement Date’ mean? It is just something to pin the Underwritten Pricing Model to now?

To boldly go to where no Regulator has gone before.

The Financial Conduct Authority (FCA) published a ‘call of input’(CfI) in September 2020, The Consumer Investments Market, in which the FCA recognised that ‘the consumer investment market is not working as well as it should’. Demographic changes mean more people are living longer, and social and economic changes mean more people are responsible for making complex decisions about how they invest their long-term savings to enjoy in later life (or more probably model a multi-stage life).

Importantly in this CfI, the FCA was seeking views to help it decide how its own rules and approach should address the harms in this market. One aspect of this is access to affordable advice. In December 2020 the FCA published an evaluation of FAMR (Financial Advice Market Review), in which it stated that 72% of people were unable to pay for financial advice and the majority wanted only one-off advice.

The PIMFA (Personal Investment Management & Financial Advice Association) report in February 2021: The Future of Advice called for fundamental reform of, and access to, professional financial and investment advice. It highlighted that the definition of advice is derived from European legislation and, therefore, understood the FCA’s limited ability to simplify the rules, until now.

Maybe the ‘B’ word can help after all. Now that the UK has left the European Union, PIMFA state that there is a clear opportunity for the FCA to review the architecture of the Handbook and provide a clearer distinction on the boundaries between advice and guidance and for it to be determined by objective criteria.

The Pensions Regulator (TPR) and the FCA also jointly launched a ‘call for input’ (CFI) earlier this year, asking the pensions industry for views on how consumers make decisions about their pension at key points throughout their working lives. TPR and the FCA want to understand how they can help at ‘key points’ in the consumer journey to improve pension outcomes, including the best points at which to offer support to consumers, determine who is best placed to provide the support, and how it can be done. Suggestions for feedback included “harnessing behavioural biases and values, embracing innovation”.

Consumer behavioural bias and values certainly seem to be stretching the transitional period between full-time work and retirement but, if the traditional view of retirement has been fully retired, and we are instead to embrace the multi-stage life, the framework to support what a good life actually looks like probably needs to be quite different to our current model.

Live long and prosper.