The AIQ Podcast: Future of retirement

The idea that in one 60s it might be time to step out of work and retire into a life of leisure is relatively recent. But with more people living longer, expectations of retirement are being reshaped in this AIQ podcast. We talk to some of the leading experts in longevity and retirement planning and try to figure out how these shifting trends are impacting our everyday lives. More specifically, how they're reshaping our plans for later life. Let's start with Brian. Brian, loans ninth decade has not been spent sitting on the sofa slippers on catching up on daytime TV.

This former RAAF pilot, air traffic controller and taxi driver has spent his 80 second year delivering Indian takeaways to the good people of West Yorkshire. Brian is not alone. He joins the ranks of people around the world working in later life like Masako. Welcome to the 82 year old who began her working life in Japan using an abacus but is now an Apple app developer.

Having acquired her first computer at the age of 60, she's gone on to create artwork in Excel and built a diverse portfolio of work to inspire silver surfers. She's something's up nicely when she said, As you age, you lose many things your husband, your job, your hair, your eyesight. The minuses are quite numerous. But when you learn something new, whether it be programming or the piano, it is a plus. It's motivating. We shouldn't be surprised at such stories.

Recently, life expectancy has been increasing by around one year every five years and a number of older people and employment continues to grow.

More years were added to average life expectancy in the 20th century than all years and across all prior millennia of human evolution combined. In a blink of an eye, we nearly double the length and time that we're living.

That was Professor Laura Carstensen of the Stanford Center on Longevity in California. And although longevity now seems to be slowing in some advanced economies or not advancing in lower income cohorts, the world will become increasingly gray in the next few decades. The odds of reaching 100 years old are around 50/50 for someone aged 20. In a Western developed economy by 2050, reaching a century won't be exceptional. But the geography of aging is complex in many countries. A significant proportion fail to reach age 65, and that is still expected to be the case in 2050.

So what does this all mean? If a 70 year life equates to around 600 and 11000 hours a century equates to 800, 73000 hours. But with the low interest rates, lower return expectations that followed the financial crisis, many will struggle to save enough by their mid 60s to support themselves for an extended period. Globalization and applied technologies have helped suppress inflationary pressures, keeping interest rates low. The exceptional measures taken by central banks after the financial crisis also reduce the cost of capital, sending real long term interest rates below zero.

Rates are yet to recover, hurting savers more than a decade on. There are two ways of considering the impact of these trends, and it depends on how you view the age old question. Is the glass half full or half empty? Firstly, for some, the answer may be forced upon them as budding retirees struggled to save enough to maintain a satisfactory standard of living if they step out of the workforce early. But on the flip side, others may embrace additional years of work for health and well-being reasons.

Many retirees struggle to replace the sense of purpose they had during their working lives. What is clear is that more work or frugality and discipline look inescapable. Retiring in one's 60s or earlier might become the exception rather than the norm. Quite simply, it could end retirement as we know it. On the upside, work might become more varied, with opportunities to develop skills in new areas, redeploying into lower paid work with social purpose, becoming an entrepreneur in later life or bridging to quite different occupations won't be impossible unless rigid gender roles with more sharing between income earning partners seem likely to.

For those who are not enthusiastic about working on and looking to the state for an ultimate safety net, it would be advisable not to become complacent about retirement provision. When the state pension was first introduced in England in 1988, for instance, the eligibility threshold was 70. An average life expectancy was 47. Today, the threshold is on the cusp of being raised to 66, and cohort life expectancy is just over 90. Here's Charlie Jicks, head of global financial institutions at Aviva Investors.

I think that the state will still play an important part in the fact that will provide a regulatory framework within which a savings system needs to operate. But I think that the days of. Actually going out of its way to actually drive the savings culture of probably over. I think it's much more important. Individuals need to take responsibility for their own financial future. And there needs to be a lot of collaborative work around the industry through a mix of asset managers, banks, saving channels and regulatory systems to really help to empower individuals to take financial responsibility for themselves in this environment.

Also, enrollment is expected to become more prevalent. Introducing the compulsion to save. Ultimately, there may be the impetus for governments to offer means tested income support rather than a state pension as a universal benefit. Other changes could include compulsory long term care insurance to address the uncertainties of access to costly social care. This would transfer responsibilities for looking after the elderly and unwell back to the state in later life. It has the advantage of being fair. Ensuring equal access and is another area where Japan has led the way.

The rebalancing of risk in Long-Term saving schemes is also ripe for change. There may be a shift to hybrid schemes attempting to address longevity risks, better blending features of defined benefit and defined contribution schemes. The intention is that defined ambition schemes would not leave either employers or employees shouldering most risk. If current predictions are correct, everyone will have to take greater financial responsibility and spend more time planning. At present, it can be time consuming to find answers to even the most basic questions, like how much do I have in my savings pots to get the answers, you might need to deal with multiple companies on various platforms, as well as the administrators of the state pension.

Numerous job changes, more than eleven in an average working life at the last count. And house moves make it easy to become disconnected from your own assets. This is a problem. Initiatives like the UK's Pensions Dashboard project seeks to address as billions of assets like unclaimed by savers in the future. The process might become easier not only to identify pension savings, but also to monitor and control what is held in investment portfolios.

By then, there is an onus on the pension administrators and platforms that run pension systems to create a much more interactive way of managing your money driven around outcomes. I think it would just be great if individuals could go on to a portal as such and be able to see where the financial decisions are leading them ultimately, and then be able to adjust the parameters around the risk and return and investment decisions in the meantime. There needs to be a driving force within the industry that brings it all together.

I think there also needs to be leaders with long term time horizons and shareholders back there because this isn't something that's going to generate profit in the short run.

That was Charlie Jicks again. What we have seen is that many retirees end up holding pension pots in cash by default, meaning that they lose out on potential income at a critical time. Others might be very unrealistic about the potential investment performance of their drawdown products, holistic data on assets and liabilities, better engagement through technology and the optimization and simplification of investment choices with clear, understandable outcomes are key to enable people to take actions in a timely way. This would be quite a leap from today, where savers are often poorly informed about the nature of the schemes in which they invest.

With pensions, freedoms, allowing investors to take quite radical steps accessing lifetime savings from the age of 55, Jicks anticipates much greater focus on addressing longevity risk and delivering lifetime income to tomorrow's retirees. Asset managers in the US and Australia already highlight its importance for those who might go on to become centenarians or even super centenarians. Portfolios that contain stocks and bonds and maybe other assets as well. A one way to potentially deliver income over many years, unlike portfolios made up wholly of bonds.

These products can be revalued if stock markets rise. Nevertheless, they are often not linked to inflation.

Any general increase in prices may be expensive, particularly if they aim to protect the saver in falling markets. Discussions are underway over the precise mix of assets that could potentially enhance what the pension holder might expect quite significantly, as Vladislav Micallef from Aviva Investors explains.

Many people entering retirement will be looking to invest for decades. If, for example, you spend more than 25 years in retirement, it might be possible to invest. Part of the pension pot in your liquid private assets like property or infrastructure similar to other investments, the risk of some decline in value losses there. It can't be avoided altogether. But in principle, they could generate more income for longer than a classic multi asset portfolios invested in exchange traded stocks and bonds.

So institutional investors have been investing in this for years. And now your case, national regulator and other asset managers are working together to try to make illiquid private assets more widely available for general public.

It is interesting to note. Management consultant Peter Drucker anticipated this race to address longevity risk. Back in 1999, he suggested slightly darkly that providing financial protection against the risk of not dying soon enough might become a major industry in the 21st century. He spotted the need to innovate to serve aging customers better. This is the direction of travel today, with expectations of life changing radically. It makes sense to step back and consider the reality of being elderly. Interestingly, more time on the planet is not resulting in more time being old.

In fact, it seems to be leading to down aging where people behave younger than their biological age. This is partly the result of current trends, but it goes deeper. Swimming the English Channel at the age of 73, climbing Mount Everest at 80 and heli skiing in one's 90s. These physical challenges have all been achieved. A closer look at mortality data suggest important changes have taken place, and the message from those who've lived for decades is that they do not feel elderly.

Take the outspoken 69 year old Dutch pensioner Emil Rattle, banned in 2018. He argued in the courts that his real age, 69, did not reflect his state of health, which was equivalent to someone in their 40s. In his view, his biological age was inhibiting legal approval to slide 20 years from it, such as the chance to buy a new house or car work and date. Although Rattle Bans Challenge was rejected. It brought some interesting issues to mind.

How effective is biological age as a marker of capacity? Not very effective at all, according to geriatrician Claire Steeves, a lecturer at King's College London.

Older people are really very varied. They're much more varied than younger people. In almost every way we can measure them. A very big exercise increases the numbers of connections in the brain, the sign up says. It also does this through actions of nerve growth factors, which are hormones which make nerve cells grow and increases levels of neurotransmitters. The ways that nerve cells talk to each other like acetylcholine and don't mean it increases the brain blood flow, giving the brain more resources to do its work.

So being active in later years will slow ageing and help keep neural networks alive. Steve cites studies of identical twins that have shown environment trumps genetics when it comes to ageing. Factors like exercise can have a marked effect on age related decline. As a result, that can be extraordinary variety in the capabilities of people of the same age. Even with an identical genetic makeup. As for the differences in the way older people respond to emotional stimuli. Psychologists believe it is possible to draw broad conclusions.

Here's Linda Carstensen again.

All things being equal. Older people direct their cognitive resources like attention and memory to positive information more than negative. If we show older, middle age younger people images and we later ask them to recall all the images that they can. Older people remember more positive images than negative images.

Greater understanding of these differences is likely to challenge traditional approaches to human talent. Forward thinking companies will use this insight to understand and harness their older workers better.

Indeed, when we interviewed Andrew Scott for a IQ last year, he pointed out that while much progress has been made around equal opportunities over race, gender and sexuality, when it comes to ageism, there is still a long way to go. Ultimately, longer lives have changed the nature of work and retirement irrevocably. Although having more time on the planet is a wonderful opportunity, it also brings practical challenges, including the need for income to sustain one's self for years and years to make the most of retirement in the future.

It might be best to shelve assumptions about what retirement means. The man who began working as a waiter, a 89 as he was dying of boredom will be an inspiration. Many varied paths that combine paid employment, work with social purpose, learning new skills, plenty of interaction with others, and health giving exercise a rule worth investigating.

It's time, Masaka Amir believes, to think differently and plant your own tree in your mind. Well, thank you for listening to the AIQ podcast. Do you look out for future episodes?