Income in retirement

A landscape of growth

People that were born just after the second world war are now in their 60s and many of them are at the point of retirement. This means that the level of income that they have available to them in their later life is likely to be their main financial priority.

Since changes were announced in the 2014 Budget, the retirement income landscape has fundamentally changed and people have more choice and freedom in how they are able to approach their retirement income. People who are retiring have a very different set of options from now on.

It’s still very early days in the UK’s journey to inspire people to build their own retirement funds through auto-enrolment. A significant number of people still don’t have private pensions and for those that do, individual pension pots at retirement still average around only £40,000. It may sound a lot of money, but this money doesn’t stretch too far. People routinely under-estimate how much they will need to live on in retirement, and how many years they will live after retiring. This all means that people need to think carefully how to make their savings last. It’s more important than ever that people get the right guidance and advice, given that the new pensions freedoms mean that some people will want to take money out of their pension pot as a lump sum cash payment.

Supporting people who are retiring with advice and guidance

Coins in a hand (photo)

In general, people do not save enough during their working lives to pay for their retirement.

Once they are aware of the gap between what they have saved and what they are likely to need, pensioners will need to rely increasingly on alternative sources of finance to fund it. People aged over 60 in the UK are estimated to have some £1.3 trillion of housing equity and we expect increasing numbers of retirees to use the equity in their homes to supplement their retirement income.

John Galvin, chief executive officer at the Elderly Accommodation Counsel, (EAC) one of our major charity partners in the UK, gave us his views on later life housing in 2014. The key points he raised were:

  • Housing is recognised as a key determinant of health, wellbeing and independence for older people. A safe and suitable home environment is critical to reduce strain on healthcare services created by accidents in the home and improve independence for older people.
  • Companies like ours are likely to play an increased role in welfare provision – we are shifting to a choice-based economy.
  • The decision about where and how to live is a complex one in older age. Downsizing and adapting homes can be stressful and expensive. Getting advice, such as from ‘FirstStop’, provided by the EAC at the right time is important to make an appropriate future-proof decision.
  • We need to do more to get a better understanding of the issues around housing and later life as society ages and technology and healthcare change.

Improvement in our health and lifestyle means that we are living longer. Looking forward, 20 million people, or 27% of the UK population will be over 60 in 2035 and on average, 72% of UK men currently aged 60 and 80% of women could reach their 80th birthday, as. So we’ve been looking to deliver a number of initiatives to ensure we can provide more elderly people with financial safety nets, a place to live, as well as innovations in the service we provide to customers and business partners.

Investing in UK infrastructure for older people

Our retirement business benefits UK society as a whole. Around 35% of the annuity premiums we received in 2014 were invested in direct investments such as the development of care homes; social housing and hospitals. This creates a pleasing symmetry as customers who have saved their entire lives for a pension income are able to see the money invested in a long-term infrastructure for themselves and their families.

Traditionally, annuity providers invest in a range of assets, such as government bonds and corporate bonds in order to meet future liabilities such as the pension income payments they need to make their customers. These income payments are usually for fixed amounts, over long periods. Investing in bonds and corporate bonds provides a long term, fixed income stream, as well as allowing us secure investment opportunities that bring with them a wider social benefit.

A recent report from the Demos thinktank estimated that retired people own £1.3 trillion of the UK’s housing equity, with a projection that 3.5 million of them would like to move to more suitable, smaller homes to free up income or improve their quality of life. While the UK government wants to enable more elderly people to stay in their own homes as long as possible, we want to help elderly people who need a greater level of support by helping to improve quality care homes. We’ve invested around £220 million in the care home sector so far, working with Care UK and Methodist Homes.

Providing dignity in later life in Mumbai

Ageing is an international phenomenon. We’ve been sponsoring the mobile medicare unit, (MMU) since 2012. The unit focuses on health screening and support for older people who can’t access or afford other health services. It operates in some of the largest slum areas in Mumbai and we work alongside our partners IndiaFirst Life and Help AGE International. Nearly 1,200 patients receive health benefits and treatment from the MMU every month. Mark Gregory, our group chief financial officer recently visited and heard first-hand about the unit from the medical staff and some of those benefiting from their services.

It was incredibly moving to meet some of the older people whose only access to medical care comes from this mobile unit which can reach them where they live. Over three quarters of the beneficiaries suffer from arthritis, which makes it hard for them to get around, so having the mobile unit makes a huge practical difference.”

Mark Gregory, Group chief financial officer

The service is also providing much needed insight into the healthcare support older people need in India.

Work with the government’s business champion for older workers

Older couple reading a menu card (photo)

We support the government initiative to re-vitalise the economy and enrich the UK workforce with the skills, experience and insight offered by workers who are over 50.

  • A YouGov poll showed that around half of non-retired over 50s wanted to still be working between 65 and 70 and only 15% of non-retired over 50s said they wanted to stop working altogether between ages 60 and 65.
  • If these findings are applied to the whole of the UK population, then this suggests that 4.8 million people want to keep working and not retire.
  • If those over 50s keep working, there is more money for them to spend which improves the economy which would result in more jobs and more growth for younger generations, which is estimated could boost UK growth by 1%.

Many people need to work longer to secure a higher pension to have the lifestyle they wish in their retirement. If someone works three years longer, on average earnings of £25,000 a year, they would earn an extra £75,000 in their lifetime and could have a pension that is 13% larger to spend for the rest of their life.

We’re helping to rethink retirement and improve the working lives and the lifetime incomes of Britain’s over 50’s and we worked with Dr Ros Altmann, the business champion for older workers, on her report ‘A new vision for older workers – retain, retrain recruit’.

What is making us live longer?

In evaluating and pricing our protection and retirement solutions, our teams have to make assumptions about how long people will live, how healthy they will be and events that could give a higher rate of claims than we’d normally expect. We call these mortality, morbidity and catastrophe risks.

This topic is important to us and wider society, because anti-ageing technology or medicine might dramatically lengthen life expectancy.

Our longevity team has been working closely with the longevity science panel, (LSP) on their latest paper. Eight eminent experts on the major advances being made in the understanding of ageing and the also the potential of anti-ageing interventions in extending our lifespan also contributed to this work. The report identifies that life expectancy could be more effectively improved through measures such as exercise, good nutrition and better use of existing treatments, rather than waiting for a dramatic anti-ageing breakthrough.

Further reading

Commenting on longevity

We will enhance our understanding of how proven strategies highlighted by the report such as exercise, good nutrition and preventative medicine would improve population longevity. The longevity science panel’s conclusions are important findings that we will now factor into our future modeling and so help inform customers, intermediaries and business partners on the risks of living longer when considering financial planning for and at retirement.

Helping pension schemes manage their future

Our investment and retirement businesses work together to help companies build more secure futures with their pension schemes.

A key objective for the trustees of defined benefit pension schemes in the UK is to pay benefits on time and in full. As an investment manager and as an insurance company we are able to offer our clients a wide range of growth investment strategies which can help close any funding gap and de-risking insurance strategies such as liability driven investments and bulk annuities, which mean that the liabilities may be reduced. Working closely with trustees and employee benefit consultants we understand our customers’ objectives and help them achieve them.

Balance with figures and apples (photo)

Making the most of low incomes – paying the right amount of tax

Tax issues can cause confusion and distress for some. People find tax complicated and when problems arise, they often don’t understand what has happened or who to turn to to resolve it. Our relationship with leading charity Tax Help for Older People means that our customers can access tax experts to help explain the personal tax implications. We have also worked with the experts at this charity to train our employees on the tax implications for our customers, particularly those trying to understand the implication of the new pension freedoms.

Where next with ageing? Our focus areas for 2015

We are developing new solutions that enable people at retirement, after receiving suitable guidance, to invest their pension pots. Our new post-retirement plans will enable consumers to access their retirement savings and take income in ways which offer a greater degree of flexibility.

We recently announced our acquisition of NewLife to help us provide flexible equity release solutions to customers. Bernie Hickman, managing director of our Individual Retirement business said: “We're delighted to announce our acquisition of NewLife and our entry into the lifetime mortgage market. The over 60s in the UK have nearly £1.3 trillion in housing equity and we believe lifetime mortgages will become an increasingly popular way for many people to supplement their retirement income.”

Key Indicator


Create a better understanding for our employees of issues our customers face from our campaign areas with the help of our charity partners.

Our investments in an ageing population