What it might mean for your financial plans – and is it good for you?
The Office of National Statistics recently released a paper assessing the likely impact of working from home on the employment habits of older workers.
It found that the proportion of older workers who are planning to work from home following the coronavirus (COVID-19) pandemic is higher than the proportion who worked from home prior to the pandemic.
This probably doesn’t come as a surprise, as the more sapping aspects of work for those who can do their job at home are taken out of the equation. No more 6.30am sardine-like trains or snarled up traffic and plastic sandwiches for lunch. More time for exercise and income still coming in – sounds like a win-win situation.
Is working for longer medically good for you?
We’re often told that the most valuable commodity in life is time. Time to pursue the hobbies that bring us joy and satisfaction, or time with friends and family. For the majority of people, striking a balance between time and earning the money required to lead their preferred lifestyle is a tough place to be, which is why financial advice is so important, as it can help people make this decision.
Financial advice doesn’t just look at the financial implications of decisions. We’re focused on achieving the most suitable outcome for people and helping provide them with the retirement they want to have. So, telling someone to work for longer in a job that is detrimental to their physical or mental health just to secure more income would not be good advice.
A substantial global study published in BMC Health concluded that working in later life can have mixed results for people.
It concluded: “Extending working life (particularly part time) may have benefits or a neutral effect for some, but adverse effects for others in high demand or low reward jobs. There is the potential for widening health inequalities between those who can choose to reduce their working hours, and those who need to continue working full time for financial reasons. There is a lack of evidence for effects on quality of life, and a dearth of interventions enabling older workers to extend their healthy working life.”
So, it really comes down to what you’re doing and the state of your mental and physical health. The point now is that societal norms can enable a better working environment for older workers, while retaining them in the economy.
In April to May 2021, older workers aged 50 to 69 years who were working from home reported that it improved their work life balance and well-being. The trend does appear to be ingrained in our working economy too. Online job adverts including terms related to ‘homeworking’ have increased at a faster rate than total adverts, with homeworking adverts in May 2021 three times above their February 2020 average.
What are our clients doing?
Phil Jenkins, a Chartered Financial Planner in Wren Sterling’s London office specialises in working with clients who have complex circumstances.
“Working flexibly and for longer has been a trend that started pre-Covid. It’s rare now that people have a cliff-edge retirement, when they reach their mid-sixties and decide to give up and lie on a beach the very next day. I’ve seen a lot of phased retirements where clients are asking their employers to go down to a few days a week, discovering new ways to fill their free time and generally feeling more in control of their situation.
“As financial planners, we bring this to life using cashflow planning technology. We can demonstrate to clients that they might not run out of money, which is often their biggest fear. We might find that they can go to three or four days a week and spend a day doing something creative or volunteering. Realising that they’ve got enough money can be a really liberating moment, as we spend most of our lives worrying about saving enough for retirement.”
It’s true that Covid has accelerated the adoption of this trend.
“Other real-life examples include people who were sick of commuting. Now that they don’t have to do it as much, they’re working for longer because they’re happy to work in their profession without the hassle of commuting.”
Phil says there are a few things to consider.
“If you dramatically reduce your income and you’re forced to dip into taking your pension, the Money Purchase Annual Allowance will kick in and you won’t be able to add more than £4,000 per annum to your pension without incurring a tax charge. So proper budgeting and financial advice can help you meet everyday expenses and keep your options open for topping up your pension at a later date.
“There are certain sectors that lend themselves to workers being burnt out more than others, such as investment banking and from a wellbeing perspective, it might not be advisable for clients to dip in and out of this world with the goal of phasing retirement, as in my experience, the job doesn’t really allow that. Again, if we’ve done the sums and decided that actually the client has enough money to sustain their lifestyle in retirement, it could be time to do something else.
“There’s a balance to strike though. I see clients who really don’t know what to do in a cliff edge retirement scenario and I’ve regularly seen the positive effects of staying mentally and physically active on my clients.
“Finally, if someone has decided to retire earlier, their funds will run out sooner if they’re not professionally managed. The rate at which a pension fund depletes can have a dramatic impact on quality of life in retirement, so our projections include the assumption that the funds are professionally managed and the funds that are not withdrawn are achieving a certain growth percentage each year.”
How are companies supporting people who want to work longer?
Paul Mitchell says: “Companies have been paying more attention to how they accommodate older workers since the default retirement age was scrapped in April 2011.
“The law states that firms must provide cover in group schemes (Group Risk, Group Income Protection, Private Medical Insurance, for example) up to the State Pension Age (SPA). It is then down to the individual company to decide whether it wants to extend that for its workforce. I have some clients who are extending cover to employees who are 70 or even 75 because they want to retain them.
“This is a really powerful benefit for employees as premiums can increase substantially at this age.”
It’s not just about providing benefits though. The trend towards working for longer and flexibly is causing companies to help employees better understand their options.
“After Pension Freedom in 2015, I’ve seen a need for more financial education in the workforce. As Phil described, the trend now is for a phased retirement supported by professional advice. We’re explaining retirement options to employees and reinforcing the fact that people can take multiple retirement pathways and phase their retirement. Employers are looking to us to deliver this education because of the positive impact it has on the employee’s personal circumstances and also because it helps clarify the eventual retirement age in their employees’ minds, which helps succession planning strategies.”
If you are reconsidering your retirement plans, please contact your adviser to discuss creating a revised plan.
Or if you know someone else who might benefit from speaking to an adviser about their retirement, please ask them to arrange an appointment with us.