Underestimating life expectancy the biggest threat on the horizon to drawing down a pension appropriately

Vitality finds individuals underestimating their own life expectancy to be the biggest threat on the horizon to drawing down a pension appropriately

11 March 2021 – 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.

“At Vitality, we want people to make sure they can really make the most of their retirement and that starts with being in the best health possible - that’s why our products incentivise and reward people with lower product charges for living a healthier lifestyle.”

Mike LeGassick, Director, Manning and Company said: “Having conversations with our clients about what their long-term financial goals are is absolutely key – and life expectancy is an integral part of this.

“Time and time again we hear that clients aren’t taking into consideration what their retirement might look like in older age and with life expectancy increasing, this is a real concern.

“Through Vitality’s innovative shared value model, we are able to work with our clients to take a more holistic approach to their retirement, helping them to live healthier lifestyles now, whilst also preparing them financially for their future – whatever their retirement plans might be.”

Ends

(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.

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