Dr Aubrey de Grey has some disturbing news for the pensions industry: future humans may live to 1000 years or more.
The problem may seem light years away but De Grey, co-founder of the Methuselah Foundation, claims that regenerative medicine may be able to stop the aging process altogether in a couple of decades. So certain is he, that the foundation offers the Methuselah Mouse Prize (Mprize) to encourage research into life extension. Cash prizes are available for the researchers who break successive lifespan records for the world’s oldest-ever mouse.
De Grey’s view is that the length of life will be much more variable than it is now, when most people die between 65 and 90, and halting the ageing process will allow them to remain in good health.
This ‘curing’ of ageing would change society in unpredictable ways but we are already seeing plans for the death of retirement. Baby Boomer retirees are expecting to be much more active in their Third Age than their predecessors and there is now a general acceptance that work, in some form, will continue beyond the age of 65 for many. A number of factors will influence this including the parlous state of saving in the UK – according to a Nationwide survey 23% of Britons are saving nothing – and the increasing need for workers to look after dependents who are parents or children. The ambition to retire is steadily becoming an ambition to work as long as possible, live as actively as possible and continue to start new ventures, such as new careers.
The Career Evolution report from Friends Provident found that increased longevity is already changing the career planning of the UK workforce. More than a third (35 per cent) of 51-55-year-olds plan to alter their careers at least once before retiring, and 20 per cent of those surveyed were expecting to change jobs at least four times or more in the next 25 years.
The impact on employers of increased longevity and ‘part-time’ retirement has still to be worked out but we can expect the axe to fall on more DB schemes – even if they survive the recession – and workers will ask more questions about their DC schemes. ‘How flexible are they?’, springs to mind.
Aged Gap Years, where 60 year-olds hoist a backpack on their shoulders and head off to see the world for a couple of years before heading back to the office, raise issues of allowing contribution holidays and income drawdown. In the US, 401(k) retirement plans are rather more forgiving of drawdown and allow it to be taken in a number of ways.
Building more flexibility into our pension systems to track real – and changing – consumer needs presents a challenge for employers and the industry, particularly at the disbursement end of the pension lifecycle. What we are heading for is retirement as a gradual process rather than a cliff edge and employees will want a range of options to deal with that.
Target dated funds that take account of varying retirement patterns may become an option in the UK and consumers are likely to favour funds with a clear track record of performance. Longer lives will raise the need for more cashflow and change some of the decisions about risk that we have until now seen in UK DC schemes. More involvement in financial planning should encourage a better understanding of the relationship between risk and reward.
For those planning serial career and job changes and a much longer working life, it will be vital to have in their sights not just the right salaries but the right financial packages for the future. Expect financial education and financial planning to become even more important.