A need for innovation and flexibility is needed as new Government analysis forecasts a significant rise in the number of people living until 100.
Analysis by the Department of Work & Pensions forecasts that the number of centenarians will pass 500,000 by 2066 and that 20-year-olds today are three times more likely to reach 100 than their grandparents. Girls born this year have a one in three chance of living to 100 while boys have a one in four chance.
Pensions Minister Steve Webb says the UK needs to “radically rethink our perceptions about our later lives. We simply can’t look to our grandparents’ experience of retirement as a model for our own. We will live longer and we will have to save more.”
MetLife is calling for the introduction of longevity insurance, through amendments to the new drawdown regime introduced on April 6th 2011, to allow more flexibility on assets held within drawdown plans, and also for the easing of rules on using pension funds to pay for long-term care.
It highlights OECD research predicting that the UK will need to spend £50 billion on services for the elderly such as pensions, long-term care and health care.
Peter Carter, Product Marketing Director at MetLife UK said: “It is entirely correct that retirement income planning needs a radical rethink and that people need to save more if they are going to live longer.
“Retirees with defined contribution pensions need to make the most efficient use of their savings, whether in the form of regular income, or lump sums for expenditure on necessities such as long term care.
“Longevity insurance is available in the US and can provide peace of mind that income will be assured in later life while allowing greater certainty and control over current income.”
MetLife believes deferred annuities held within pension plans would enable savers to plan ahead for the risk of living longer than expected, and potentially exhausting their retirement savings. Deferred annuities protect against this risk by guaranteeing an income at a fixed age while allowing individuals to continue to draw an income from their existing fund.
For example, someone with a fund of £250,000 could decide at 60 to buy a deferred annuity for £30,000 to pay out a guaranteed income of £26,065 per annum at age 85. The remainder of their fund could then be used to provide the maximum income until the age of 85.
Easing of existing capped drawdown rules to enable investors to use funds to help pay for nursing home care, with any money left subject to 55% tax, should also be considered, MetLife says.
The proposals form part of a wider campaign by MetLife for pension reforms aimed at increasing total pension savings, engaging younger savers, and improving the standard of living of retirees. MetLife plans to launch its full proposals for pension reform in September.
Source : Metlife
