Ian Price, Pensions & Consultancy Director at St. James’s Place Wealth Management, Says Baby Boomers Rock
It’s always important in any meeting with a charity or client to declare a conflict of interest. I will declare mine: I am a baby boomer – one of those people born between 1946 and 1964. And I’ve been doing a lot of work recently on the impact that my generation have had, and will have, on the market.
Baby boomers now account for 80% of the UK’s wealth, or around £6.7 trillion, and that fact alone demonstrates why their thoughts, feelings and decisions about retirement will be the single most influential factor for our industry over the coming years.
As one of these baby boomers, I am reasonably well placed to claim to understand the issues they face. So, I’ll tell you a bit about my life. I started work in 1977 on an annual salary of £1,800, and that’s when the retail price index was running at 15.8%. Back in the day, if you didn’t get a 20% annual pay rise you’d think you’d been hard done by. Of course, today pay rises are few and far between and – in my world at least – there is no of guarantee of annual increase to your wage. Baby boomers have witnessed dramatic changes in society and the workplace over the decades.
Financial planning requires an understanding of these changes, as well as why the experience of my generation is so different to that of their parents. So let’s return to the life of Ian Price to help to explain this in a bit more detail.
When I was born in 1957 in Kettering, three of my grandparents were already dead – but then, that was commonplace back in the mid-century. Six decades on, and my children have three grandparents who are alive and well. In fact, my mother is about to celebrate her 90th birthday. Mrs Price senior is one of the lucky ones: she is well, she still drives each day, and she is in receipt of my late father’s final salary pension scheme 24 years after his death. The pension is now greater than the salary that my dad earned in any one year while he worked.
People Try to Put Us Down
But the world is changing – and changing fast. So, what makes baby boomers different to previous generations?
Well, there is the demise of the one-time jewel in the crown of pension planning – the final salary scheme – which continues on its steady path to extinction. My contemporaries will be the last generation to have benefited widely from this arrangement.
Then there’s the matter of our parents, who are living longer and not dying before they get old. The longevity of our parents will mean that inherited wealth is likely to come to us at a much later stage in our lives. And the amount we inherit is likely to be much less than we would have previously expected as the cost of care for our ageing parents rises. Consequently, today’s baby boomers could find that their longer-living parents run out of money to cover their retirement years and become a financial burden.
The Kids are Alright
Meanwhile, baby boomers are spending more money than ever before on their children, to help with the increased costs of university or deposits for houses and establishing them in the adult world. The average first time house buyer is now aged 37, which is ten years more than 20 years ago. And this demographic development is giving rise to some wonderful expressions.
There are the ‘boomerang kids’ that leave home to make their own way in the world, only to come back to live as the only viable way to negotiate their path through a harsh and competitive job and housing markets. This has led to ‘intergenerational living’ with families building extensions to their houses or converting part of their home to house their parents or adult children. (A friend of mine recently did exactly this, when deteriorating health forced her parents to move back from Spain).
The demographics of ageing has resulted in baby boomers making some fundamental decisions for their financial planning. The first one is that most baby boomers I come across have resigned themselves to the fact that they are going to work much longer than they anticipated. Yes, the concept of being able to retire at 60 or 65 has all but disappeared for most people: they know they do not have enough set aside in their pension funds to be able actually to retire.
Any Way, Anyhow, Anywhere
Another factor is a fear of retirement. In recent years I have realised that there is more than meets the eye to retirement, which is for most people a moment of profound change. Consequently, more and more people I meet express that they are scared to retire. They don’t know what they are going to do with their time. Or perhaps they had a friend that died suddenly, soon after they retired. These fears have contributed to longer working lives becoming the norm.
But our expectations of old age have grown. Scan the obituary columns of your local newspaper and come across someone that has died in their sixties and seventies, and it is likely you’ll think they have died young. We expect increasingly to have longer lives, and to be able to continue to work and lead an active and healthy life in our autumn years.
But then, rather than shuffling to an early grave, more and more of us have one foot in the gym. The average pensioner now enjoys three holidays a year and is fitter in retirement than in his (or her) working life. One in ten pensioners opt to return to education, and eight out of ten treat retirement as a beginning rather than an end. Whereas my dad viewed the day of his retirement almost as the end of the world.
Things They Do Look Awful Cold
All of these developments have had profound consequences for financial planning. We know that baby boomers in recent years have not put away as much money as they used to in the early part of their career.
I was lucky enough in one of my careers to benefit from a final salary scheme for 25 years, which has meant that my retirement planning is OK – but still not enough. But more and more baby boomers have realised that they have not got enough to retire. They are working longer and have started to fund their pensions later, due to the pressure on their income – often from that very same support that they have to give children and parents.
Another emerging trend among baby boomers is to downsize. And friends of mine in their early sixties are selling their homes not just to downsize but, with an eye on inheritance tax, to avoid having all their money in property. In London, a lot of people have realised that the only way they will be able to retire is to sell their property and move out. The number of people who downsize when they approach retirement will continue to rise.
Another trend we can expect to strengthen is that of baby boomers working part-time into their late sixties and early seventies. And there are also many households in which both partners are wage earners – whereas my dad, as was normal for his generation, worked, while my mum maintained the home. And two salaries can mean two pension funds, which can act as an important counterbalance against the drifting threat of a pension crisis.
Baby boomers have enjoyed rising house prices, final salary schemes and above average inflation pay rises (although many now feel as if they are now going backwards). But one quality, I think, will stand the baby boomer generation in particularly good stead is its ability to adapt. My generation know and understand the reasons why they are going to have to work longer than ever before. Planning, therefore, will be crucial.
With 80% of Britain’s net personal wealth held by the over sixties, retirement planning will become increasingly important over the next decade. Consequently, more of the UK’s wealth will be disinvested rather than invested, spent rather than saved.
Baby boomers have also earmarked other assets as part of retirement planning, not just pensions. Many people now use ISAs as part of their retirement planning. Pension campaigner Ros Altmann is right that the way to increase pension provision in the UK is to drop the word pensions. Instead, we need to talk about retirement planning that ensures that assets are in the right place at the right time to offer the level of income anticipated in retirement.
Talkin ‘Bout My Generation
So, baby boomers rock. They adapt really well to job market changes. They are more interested in helping their children to secure the best possible start today, rather than worrying so much about leaving an inheritance in the future. They are yet to inherit their wealth and what they inherit may be substantially reduced by their parents’ longevity and spending to cover these extra years.
But they still need financial planning and advice. They need to know when to retire, what retirement could look like, how they are going to plan for it and, more importantly, what they need to give up to attain their desired level of retirement.
Crucially, they don’t feel old and they don’t dread the thought of retirement – but they do dread the uncertainty of not knowing what they will do in retirement.
Understanding my clients who are over 50-years old is very important. Working out how best to advise them given this shifting environment is crucial, as is talking to them openly and honestly about how the world is changing and what this will mean for their retirement plans. That will help them to understand how they need to plan.
Ian Price is Divisional Director – Pensions & Consultancy – at St. James’s Place Wealth Management