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What happens when you live too long?


One-third of babies born today are predicted to reach 100 years old [1]. Even though current retirees are less likely to become centenarians, most underestimate how long they might live, turning longevity into a ticking time bomb under their retirement income, cautions Roger Marsden, Managing Director of Equity Release at Aviva. And for advisers, this glaring gap between perception and reality is a valuable opportunity to help customers understand the impact of longevity on their retirement plans – and to keep those customers close right through their retirement journey.

Back in April 2015, the Government introduced its radical new pensions freedoms, giving people the choice to take all their retirement savings as cash from age 55, with 25% tax free and the remainder taxed as income.

This freedom comes with some important small print: savers are now responsible for using their retirement savings wisely – and for making it last as long as they do. People are living longer than ever before, but customers tend to gauge their own life expectancy based on what they believe the average age to be. This means they significantly underestimate how long they might live, creating a very real risk that they could outlive their retirement funds altogether.

This gap between perception and reality has a huge impact on retirement planning. For example, a customer who budgets for a 20-year retirement, but actually lives 25 years, will face an uncomfortable few years of life if they have no guaranteed income. Missing the mark by even a couple of years can leave people with no savings to fall back on to fund the retirement they’d planned, possible residential care or even everyday living expenses. Annuities will provide a guaranteed income for life, however for some customer this may prove insufficient as they move through their retired years.

Big financial decisions are notoriously easy for customers to put off – especially ones that mean facing up to their own mortality. But it’s actually life itself that we need to think harder about – and what happens if it’s longer than we expect.

When it comes to retirement, getting customers up and running is now just the start of the story. So with life expectancy and living costs continuing to rise, if you’ve got a back book bursting with retired customers, there’s every chance they could still need your help.

Housing wealth should play a role in a holistic planning strategy, with equity release representing one of the options available for customers who are outliving their retirement pot. Whether it is to fund home improvements, help their children or grandchildren onto the housing ladder or just to fund day to day life, a lifetime mortgage can provide much needed respite. This is particularly true for individuals who are keen to remain in their own home, or who are less concerned about the amount they can pass on as inheritance.

Helping retirees factor in longevity to these big decisions should be a top priority for our industry and for Government. Your customers need support and advice in the run-up to retirement, and beyond. (And with the number of centenarians estimated to increase from 14,000 to 111,000 by 2037 [2], this is an opportunity that’s only going to grow.)

Whether you write equity release business yourself or refer it elsewhere, Aviva have all the tools you need to make the most of this big opportunity.

Roger Marsden is Managing Director of Equity Release at Aviva

[1] Office for National Statistics, 11 December 2013.

[2] Office for National Statistics, 11 December 2013.



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