Retiring Baby Boomers and the Future of Pensions

Wealth and Pensions Planning for Baby Boomers

“There’s no question that the UK’s retiring Baby Boomers were a privileged lot,” opines Drewberry’s Neil Adams. “They were the last generation in this country to expect a ‘job for life’, to have access to generous final salary pensions until retirement and to benefit from double-digit interest rates during their working lives.

“They also caught the last train when it came to annuity rates, and now have access to a wider range of pension products, such as income drawdown,” he says.

Among other things, those Britons who formed part of the post-1946 population explosion in this country today account for well over half of the UK’s estimated £2.5 trillion of property wealth.

As Adams, who also happens to be a member of this privileged cohort, explains, “we also managed to ‘make out’ from an era of de-mutualisations, privatisations, council house conversations and generous company share schemes. Not to mention a personal pension regime that was lavish compared to today’s.

“Although we don’t deserve any credit for it,” admits Adams, “Britain’s Baby Boomers are now the wealthiest generation this country has ever produced and Baby Boomer retirement could mean a wealth of opportunities as well, especially in terms of what pension income drawdown has to offer.”

Free and Clear: How Retiring Baby Boomers Can Benefit From Pension Drawdown

All this means that the biggest financial challenge still facing those Britons who were born between the years of 1946 and 1964 is to make the most of the 2015 pension freedoms.

Thanks to a number of timely rule changes in these freedoms and some major enhancements to the income drawdown rules, they delivered the most flexible and ‘user-friendly’ pension regime this country’s ever seen.

As Adams points out, “For younger Baby Boomers this can mean consolidating multiple pension pots into one low-cost drawdown portfolio with bags of investment choice.

Steve is a busy lawyer who got a pleasant surprise when Drewberry reviewed his retirement plans and helped consolidate his pensions into an easier-to-manage pot. Read Steve’s story here →

Staying Flexible: It’s Now Easier to Inherit Pension Pots

Making the most of the flexibility offered by the newly-enhanced income drawdown regime is the next step, says Adams.

“This means designing a durable programme of withdrawals based around each client’s unique circumstances and which includes sensible safety measures such as keeping a year or more’s income in cash to limit the risk of ‘pound cost ravaging’.

“It also means identifying when options such as impaired life annuities might come into play. All this means regular drawdown portfolio reviews and client relationships that can span decades.

“Using a Pension Drawdown Calculator has also shown clients how vital it is to plan and take action to extend the life of their pension pot.

“Having accumulated the lion’s share of this country’s wealth,” says Adams, “the other big question facing many Baby Boomers today is how best to pass on that wealth without generating a major inheritance tax problem.

“Active pension planning is a big part of the process,” says Adams, “as is taking a holistic approach that encompasses all of a client’s assets and their changing needs over the years to come,” he says.

“As the old adage goes, ‘failing to plan is planning to fail’ and that’s especially true of today’s affluent Baby Boomers. Fortunately, the new rules on inheriting pension drawdown arrangements are much simpler than previously.”

Should Baby Boomers Transfer Final Salary Pensions?

It can also mean exploring whether or not today’s bumper final salary transfer values present an opportunity not to be missed.

“There are some 6.8 million Britons with deferred final salary pensions of one kind or another,” he says, “and the great majority of them were born into the Baby Boomer generation.

“A great many in this cohort will benefit from putting all of their various pension savings into one well-diversified portfolio that can be viewed on a single screen,” continues Adams.

“This is a great first step to building a pension pot that will last throughout their retirement and possibly beyond.”

“Don’t forget that the combination of having so much salted away for their retirement and the arrival of the pension freedoms which, among other things, eliminated the previous 55% ‘death tax’ on pension assets means that today’s retiring Baby Boomers will leave far more pension wealth to their children than any previous generation,” he says.

Overall, most baby boomers have enjoyed significant wealth accumulation over the years, particularly in the case of property and final salary pensions.

This means that financial planning is hugely important for this generation, especially as they start to retire. For help and advice, don’t hesitate to pop us a call on 02084327333.

Neil Adams
Pensions & Investments Expert at Drewberry