POSTED: March 24 2021
The Life expectancy and pension underestimation

The Life expectancy and pension underestimation

Individuals underestimating their own life expectancy is seen to be the biggest threat on the horizon to drawing down a pension appropriately.

New data from Vitality has found that advisers consider the biggest threat on the horizon to people drawing down their pensions appropriately to be them underestimating their own life expectancy1 – a mistake which could significantly impact retirees being able to live the lifestyle of their choosing when they stop working.

Government data2 shows that men on average spend 19 years in retirement, while women on average spend 22 years3. However, a pension pot that aims to provide income for an average retirement period will likely not be sufficient, since a large proportion of people will live beyond the average life expectancy.

These findings further reinforce the importance for retirees to ensure that they plan carefully for their retirement, with Vitality data showing that for someone who would like to retire with an annual drawdown income of £13,8624 from their private pension, living five years longer than they might expect could leave them with a pension shortfall of around £50,0005 – a significant amount.

Fortunately, the data also revealed that the younger generation are heeding this warning, with nearly half of advisers (49%) surveyed agreeing that when compared to ten years ago, those under the age of 40 have become more aware of the risks associated with not saving for retirement.

Justin Taurog, Managing Director of VitalityInvest said: “As advisers recognise, we are all living longer but people aren’t thinking through what this means for them financially in the longer term.

“Whether it’s the luxury of being able to spend more time and money on hobbies and adventures in retirement, or simply having the funds to provide for health and care needs in older age, advisers play a key role in helping people explore the implications of the financial decisions they make today and the impact they will have on their future.”

advo has created a number of strategic partnerships over the years to ensure all advo clients have access to broad level of advice and support needed by employers, this includes working with financial experts who can advise on pensions. Email us on info@advogroup.co.uk and we will be able to help.

 

Notes 

(1) 202 UK advisers surveyed in February 2021 by Opinium

(2) DWP Economic labour market status of individuals aged 50 and over, trends over time: September 2019 – the male average age of exit from the labour market was 65.3 years old and the female average age of exit from the labour market was 64.3 years old.

(3) ONS: National life tables – life expectancy in the UK: 2017 to 2019 – Life expectancy at age 65 years was 18.8 years for males and 21.1 years for females

(4) The difference between £20,200 p.a. required to fund a moderate retirement lifestyle (Pensions and Lifetime Savings Association: Retirement living standards) less the new State Pension of £175.20 per week.

(5) Vitality calculation showing the difference between the pension pot required at retirement based on 3.6% growth p.a. net of charges and drawdown income increasing by 2.5% p.a.

 

You can read the Vitality press release in full here.