“Younger people have the risk of their money not growing enough to keep pace with inflation, while older people run the risk of their money running out before they do. Younger people have long time horizons and are thinking about the future of the world. So, not only do they want real growth on their money but, typically, they also want their money to matter when it comes to dealing with environmental, social and governance risks.”
He adds: “These risks are still important to older people but are less critical as their personal time horizons are shorter.”
Catriona McCarron, wealth manager at Ascot Wealth Management, also reflects on age as an important demographic risk factor for pensions: “The demographic risk of the ageing population means increased reliance on the state pension for those who plan drawdown and surpass their expected mortality age.
“We use a higher-than-average age for projecting the affordability of income drawdown in cases like this, but also have a bank of clients who we know will feel more comfortable considering an annuitisation of their pensions should annuity rates rise over a certain percentage. This is because their capacity for loss of income is more important than their desire to perhaps pass assets down their bloodline or to have flexibility regarding how much they withdraw from their pot.
“We feel it is important to ask the ‘what if’ questions, such as what if a client outlives their pension plan, or loses the triple lock to their state pension for example, and how will they maintain their standard of living?”
Another key question for consideration is: how long is the client likely to live for?
Fiona Tait, technical director at Intelligent Pensions, says: “We use ONS figures to identify average life expectancy but base the plan on the fact that the client could live much longer. In general, we plan for income to last until at least age 100 unless there are any relevant health conditions which make this unlikely.”
Jonathan Cooper, head of paraplanning at Drewberry, also emphasises that planning goes beyond retirement: “An ageing population with increasing life expectancy adds additional pressure on pension savings and planning should include provision for care in later life.”
And demographic risk is not just associated with older generations, as he points out: “At the other end of the spectrum, an increasingly tech-savvy population of younger savers needs to be engaged with retirement planning. Traditional advice routes need to be re-thought and remote or robo-advisory options developed.”
Fiona Nicolson is a freelance journalist
