I seem to spend most of my working life dealing with a demographic group that barely seems to register, but which seems to be increasing in size and importance.
My typical client is aged between 55 and 75; despite their relative wealth, compared to other demographic sectors, the financial services industry appears to be ignoring them. I would describe this demographic group as:
• Active and healthy, particularly when compared to people of the same age 20 years ago
• Working, in some form or other
• Having a surplus of income over expenditure
The financial services industry and policy makers seem to have decided that what was good for people of this age 20 years ago must be good for them now. They have ignored the improvement in the general health of this demographic group and the awareness these people have of the increase in their life expectancy.
This is most obviously clear in pensions policy. Pension providers and regulators push people towards a fixed retirement date with a default choice of annuity purchase, imagining that most people still retire fully on a specific date. My experience is that the move from full-time, high-pressure work to a complete reliance upon pension and investment income takes most people many years; a 15 year process is not uncommon. The compliance and regulatory profession tells us that this uncertain reality of the retirement process should be ignored, as they attempt to force us to shoehorn clients into a fixed income from a specific retirement date.
Most people in this group have built up a reasonable entitlement to final salary pensions, often in the statutory schemes, yet the operators of these schemes offer them virtually no flexibility. The administrators of these schemes are unhelpful at best, and often obstructive when asked for the information required to help with a financial plan.
Investment managers are not much better. Whilst it has becoming increasingly easy to obtain total return performance figures for all sorts of investments, it remains difficult to separate out income and capital returns. Most investment funds stick with woolly definitions of income in their objectives, with fund managers usually being rewarded for total return only. Most discretionary managers seem to think that an income portfolio is the same as a growth portfolio but with a bit less risk; this group needs portfolios tailored to produce income – it doesn’t take long to work out that the asset spread for an income portfolio should be different than for a growth portfolio.
But it’s not just financial services.
Social policy ignores this group. It is true that they are less needy than other demographic groups but they shouldn’t be ignored. The future members of this group are particularly important. Society identifies individuals by the job they do. There is no attempt to explain to people that some jobs might not be appropriate for a lifetime of work. Manual jobs, teaching, etc. are unlikely to be suitable for those in their late 60s, yet there is no attempt to explain that if you have a physically demanding job, you may need to re-train, in order to be able to make the best of the period between flat out work and retirement. It is clear that some people will need help with this.
Society’s reaction is to hope that those who are working today will be happy to pay for other people’s premature retirement at the same time as casting the skills developed from a lifetime of useful experience onto the scrap heap.
I think that financial planners can help this group. We are in a position to offer honest answers. We know that only a few people will be able to save up enough money to live comfortably off pensions and investments for the 30 years they expect to live from conventional retirement ages. And it’s wrong to expect today’s youth to pick up the cost of premature retirement. A profession that wants people’s trust could start by delivering the truth, even if the message doesn’t sound great (don’t forget the root cause is that we are all living longer)!