Flexibility could solve mid-life crisis
MILLIONS of UK ‘mid-life’ employees – those in the work pool aged 45 years or so – believe they may not have enough money to retire when they choose, according to a report published yesterday by financial products giant Aviva.
Aviva is calling on the UK government to introduce what it calls “state pension flexibility” to enable a phased approach to retirement, as recommended in its research work entitled The UK’S Mid-life Workforce: navigating uncharted waters.
It says such a scheme would bring a twinned benefit of retaining experienced workers for longer where recruitment of the right people can be difficult. Training new candidates can also be expensive.
It further argues that flexible withdrawals of the state pension from the age of entitlement would remove the “all or nothing” choice faced by millions of workers, allowing people to claim some of their state pension from their state pension age.
The deferred pot then increases annually by a set amount, in line with state pension practice when no state pension is claimed at entitlement age. The current option is clearly a limiting factor across several bases.
It’s taken a year to crunch all the figures and reach useful conclusions; Aviva started collecting data last January. The work involved opinion research of more than 2,000 employees in the age category and around 1,000 business decision makers.
Some core outcomes: it reckons some 4.5 million mid-life employees may not have enough money to retire when they choose; and consumers do not, or cannot, access regulated financial advice which means they are acting alone, hoping for a best-case scenario in retirement.
The 4.5 million figure is scaled up, based on there being around 14 million mid-life employees in the UK and, in round terms, 32% of them highlighting financial concerns that will dictate their retirement planning.
Lindsey Rix, Aviva’s CEO of UK Savings and Retirement says: “There are several actions the government and employers could consider to better support workers in the 45 plus age group.
“We believe the choice between claiming 0% or 100% of the state pension no longer reflects our increasingly flexible working lives and we are calling on the government to allow individuals to make flexible withdrawals from their state pension when they reach their state pension age.
“We want to work with the government and regulators to make sure that suitable advice is accessible and affordable for the majority, within a properly regulated framework.
“The number of mid-life employees continues to grow to unprecedented levels. Aviva has learnt a huge amount about the challenges and opportunities facing this population from the delivery of our Mid-life MOT programme (its advisory offering to its own employees).
“Our report shows there is a huge demand for a fuller working life amongst those aged 45 (and over). However, we believe the state pension age acts as an artificial ‘hard line’ in the working lives of many.”
Rix’s explanation comes with a stark caveat: “If we fail to prepare for an ageing workforce, the consequences will be damaging for generations to come. Not only could we see an increase in poverty in retirement but also a greater strain on our working population and a UK restricted from investing in its future as it struggles to navigate its present.”
The UK government’s industrial strategy gives focus to the ‘grand challenges’ facing the UK, including ageing, the report authors point out. Rix encourages the Westminster government to consider Japan’s approach, with its creation of a single government lead for ‘ageing in society’, instead of our more fragmented and inevitably less effective take.
We all know the age at which people can access their state pension is rising. Together with a shift towards defined contribution schemes, it means almost half (49%) of UK employees aged 45 and over are considering working for longer or are already working beyond the state pension trigger.
That may be a good thing, avoiding retirement poverty. Yet surely it comes with some negativity? Despite the costs associated with training a new generation of young candidates, that training is a must for sustainability. Balancing that with retention of some older heads sounds logical, though.
Aviva’s ideas are interesting, even innovative – but for me they need greater breadth and depth before mass adoption could be considered. Food for thought.