When they approached retirement, the pensioners of today largely knew what to expect.
Reaching their State Pension age would almost certainly be the point that they would retire. A Defined Benefit (DB or final salary) scheme from an employer could also be relied on by many, guaranteeing an extra income.
This journey to retirement provided plenty of certainty and not much in the way of actions or decisions to take.
Shift forward to today and that has now changed – and will continue to do so. It’s quite possible that this concept of ‘retirement’ as it’s known today, will soon be obsolete. This is because the boundary between work and retirement is becoming increasingly blurred.
What’s causing the shift?
The way we think about work and retirement have shifted because of some key developments such as the removal of the default retirement age in 2011. Recent increases in the State Pension age – set to rise again to 67 between 2026 and 2028 – are also a big factor.
There have also been some radical changes to pension policy over the last decade. In 2015, ‘pension freedoms’ were introduced, allowing savers to access their pension pots from age 55. This meant that they had greater flexibility and control in how they use those funds.
Perhaps even more significant has been the demise of final salary schemes, with many employers now using Defined Contribution (DC) schemes instead, which pass much of the investment risk and responsibility to individuals.
The effect of all those changes has been to bring an end to what used to be a very structured framework for retirement.
The certainty of previous retirement plans perhaps provided confidence and peace of mind. But for future retirees, the concept is changing, and it will look completely different for future generations.
Embracing change
The way that the retirement journey looks set to shift is to take a more gradual and drawn-out route. Rather than moving straight from work to retirement, there will be more choices about how retirees access the wealth that they have accumulated. It could potentially provide the opportunity for some to realise ambitions for later in life.
The picture for retirement savers of today is far less certain and there is very little in the way of guarantees. But what they do have is a much bigger say in how and when they retire, from the beginning of the savings journey right into later life.
A sense of direction
That savings journey involves thinking about where you want to go and how to get there. For example, you may dream of swapping employment for rewarding unpaid work, embarking on some travels or starting a new business in later life.
Or you may just want to leave the decisions until later to assess your circumstances and ambitions at the time.
It’s up to every individual to plan the life they want for the future. At a younger age, you may not know what your long-term goals are, but you might know that you will want some freedom and choice later in life.
As individuals take on more responsibility for how their finances in later life will be arranged, there are more decisions to make along the way. For example, looking into the best mix of assets and products to invest in. Of course, pensions will remain vital, not least due to their tax efficiency and the extra contributions that employers offer. But assets such as investments and property also have a big role to play in a diverse portfolio.
*The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
*The levels and bases of taxation, and reliefs from taxation, can change at any time. *The value of any tax relief depends on individual circumstances.
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About the Author / Tony Clark
Tony Clark, Senior Propositions Manager at St. James’s Place. Tony specialises in retirement, tax planning and social care.
At a certain age we will not easily accept new things. That’s what keeps us from keeping up with the times.