The changing face of retirement

The launch of Sun Life Financial of Canada’s Unretirement Index has shown a distinct lack of confidence in the UK’s retirement provision. Mark Stopard looks at why this is the case

Without doubt, the concept of retirement has altered irrevocably. Alongside industry changes, such as the move from defined benefit to defined contribution, peoples’ views have also drastically shifted over the last few years, with factors such as interest rates, the recession and wellbeing all playing a part.

To better understand this changing landscape, Sun Life Financial of Canada created the Unretirement™ Index, which tracks over 6,000 workers’ attitudes and expectations on retirement across Canada, USA and Asia. It was first launched in North America during 2008 and is already well established both there and in Asia. The index works on a scale of 0-100 where 100 represents extreme optimism and the expectation of a perfect retirement at the perfect time.

July 2010 saw the first British version of the Index with the score coming in at a worrying 35, lower than both our American (score: 46) and Canadian (score: 51) counterparts. The results convey a worrying picture of our own retirement expectations, with perhaps the most concerning finding that only a third (32%) of the British working population currently expects to have enough income to enjoy the retirement lifestyle to which they aspire.

The reasons for this lack of confidence seem to vary. For six in ten (61%) people, it is because they don’t believe government pension benefits are enough to live on, while four in ten (39%) don’t believe their employer pension or savings plan will suffice either.

Unsurprisingly, the recession has certainly played a part in consumers’ attitudes towards their retirement. As a result of the current economic environment, two thirds (65%) of Britons expect to work longer than anticipated, and over half (54%) acknowledge that their retirement will not be as positive as they had hoped.

Confidence knocks

Recent stock market volatility has resulted in consumer confidence taking a clear hit. The recent decision to delay the compulsory purchase of an annuity at age 75 and potentially abolish it entirely, would have helped the many thousands who have recently been forced to purchase an income at a very poor time, from their perspective. However, on a more positive note,  almost a quarter (22%) of those who envisaged continuing employment will do so because they enjoy the people they work with, and 38% enjoy their job or career.

Perhaps unsurprisingly given this backdrop, the macroeconomic and personal finance indices paint the most interesting pictures. While the current low rates of interest in the UK give people confidence, the rising costs of home energy is the biggest area of concern for Brits.

However, despite clear signs of a need to turn things around, one in four (25%) are failing to change their every day financial patterns, whether it be reducing spending, increasing saving, modifying their investment mix, improving their income or indeed delaying their expected retirement date.

What struck me most was that if retirement income is lower than anticipated, consumers would prefer to work longer (34%) than spend less (15%) or save more (27%).

Phasing routes into retirement

This is clear evidence that people do not want to see their disposable income fall, instead opting to continue working. With the abolition of the default retirement age, this is set to become easier for all as they seek to phase their route into retirement.

It was unsurprising that the older the respondents, the more likely they were to think they will need to work part time with 39% of over 55-year olds. By contrast, in Canada, only 42% of this age group expect to work longer than anticipated – 3% down from the 2008 Unretirement™ Index.

Britain’s first Unretirement™ Index provides real insight into the key issues facing not only the at-retirement market, but all consumers and their attitudes to retirement.

Consumers appreciate they can no longer rely on the State or their employer for their retirement income, instead realising that they themselves are their best hope of securing the sort of retirement they aspire to. However, the policy landscape is changing to reflect increased longevity and with it the archaic notion of compulsory annuitisation at 75. These changes are long overdue and combined with innovation from product providers, they will help many to approach retirement with more options than ever before.

For the time being at least, Great Britain has declared itself unretired.  But with the recent Budget and cuts planned across the board, it will be interesting to see how these trends are affected in the next edition of the Unretirement™ Index published later this year.  

Mark Stopard is head of marketing at Sun Life Financial of Canada