Bob Champion: Financial planning for an ageing society

As the proportion of  the population aged 80 or over grows, Bob Champion asks if housing wealth is playing a big enough role in later life financial planning

The Office for National Statistics (ONS) recently published its latest population projection updates for the United Kingdom. There was a lot of press and social media coverage about the increase in over 65s that will arise over the next 20 years or so and how society will have to adapt to accommodate them.

This is particularly true when one considers the number of over 65s in relation to the number people of working age in the population.

I am, however, not overly concerned about the impact of over 65s as a whole. Many people of that age are able to continue to work. They may not want to give up work from a personal satisfaction point of view. Others may be forced to continue to work due to insufficient savings. I accept that this overlooks the fact that a large number will not have the physical ability to continue to work beyond age 65.

The number of those who are able, and wish, to work beyond age 65 is an economic plus that policymakers need to take advantage of.

Over 80s population growth

I am more concerned about the over 80s and the rapid growth in their numbers that are predicted. In 2019, 5% of the UK population are over age 80. This will rise to 6.4% by 2029 and 7.5% by 2039. Over this period the population of the UK is projected to increase from 66 million today to 71 million, when 5.3 million will be aged over 80. Nearly two million more than today.

As healthy life expectancy is not increasing as rapidly as longevity, many social issues will arise. Will care support services that are already stretched be able to cope with the increase in demand that will occur? Similarly, will we have the housing stock to provide the accommodation that will be required?

To us in the financial services industry, how will we advise people who when they were 60 believed they had 25 years to live, but when they are 80 do not have the money to survive another 10 years or more which is what they may be facing? When do we ring the alarm bells that no one is average and raise the probabilities and consequences of living much longer than average?

What I find interesting is the local authority breakdowns of the ONS statistics. For some local authority areas there are small declines in the over-80 projections. For others the rate of growth is much greater than the rate of national increase.

Remember that those commencing retirement today, or their partners, will be among the 5.3 million over 80s in 2039. What will the next 20 years and beyond be like for them?

Living on my own

As an illustration of the rapidly changing world we are living in, the Equity Release Council has published a report about older people living alone. It predicts that within the next three years the number of over 65s living in single households will by 2022 reach four million. Over the past decade the number of over-65 single households have risen by 15%. 2022 is almost upon us.

This increase is caused by people retiring without a partner, the death of a partner in retirement and the breakdown of marriages. Just under 10% of all male divorces occur after age 60. This does not include those who separate without a formal divorce.

The cost of two people living together is less than them living apart. Statisticians work on the assumption that the cost of two people living together is 50% more than one person living on their own. Therefore, if a couple go their separate ways, between them, they will need a 33% increase in income. That is a very general rule of thumb and each separation will be different, but in retirement where does this increase in income magically appear from?

The same occurs on the death of a partner. The survivor will require 75% of the couple’s joint income to maintain their living standards. With this information, the fact that 40% of all new equity release plans are taken out by single people is not surprising.

This brings us back to the ONS population projections. Unfortunately, life is not fair. In a couple there is a fair chance that one individual will live well beyond age 80 while the other will not survive long beyond that age. But which one?

The latest statistics from the ONS, when coupled with the Equity Release Council paper, illustrate not only the risks that have to be addressed with later life financial planning but also the importance of housing wealth in addressing those risks.

Bob Champion is chairman of the Air Later Life Academy