Picturing retirement income: scenario planning

While the UK government plans to raise the pension age for men and women from 65 to 66 by 2020 and 67 by 2026, those currently entering the post-work phase of their lives are spending more time retired than ever before.


In England and Wales, life expectancy for men at age 65 increased from 17.8 years in 2007–09 to 18.6 years in 2011–13 and from 20.5 years to 21.2 years for women of the same age*. But living longer in retirement also increases the importance of financial contingency planning.


Liquidity and diversity of investment are key elements in effective financial contingency planning for the retirement years.

There is always a case for having some liquidity in a retirement income plan for the proverbial ‘rainy day’. If your needs change or you require quick access to a capital sum, an income-focused investment fund could offer greater flexibility than some other options. For example with a buy-to-let portfolio, it can take months to sell a property and a lower than expected selling price could impact the return on your investment.

Moreover, if a serious illness is diagnosed and certainty of income becomes the most important consideration for you, a liquid investment gives you option of using all or part of your funds to achieve income certainty through  purchasing an enhanced annuity, which can offer a higher rate of income if your life expectancy is reduced.

Factors to consider when planning for contingencies in retirement:

  • Will your tax position change or your mortgage or other loans be paid off?
  • Will a State Pension become payable, insurances mature or a partner stop working?
  • Even if you don’t need extra income at the moment, how will you preserve (or increase) the value of your capital?
  • Should you buy an annuity later in life? The so-called ‘longevity hedge’ does require you to have retained a certain level of capital, but the payoff is an element of income that is guaranteed

Cost of care often unclear

The cost of long-term care is the ‘elephant in the room’ of this conversation since few people retire knowing exactly how much care they will need, when they will need it and what it will cost.

Someone who enjoys reasonably good health during retirement might expect to see their expenses decrease over time as they become less able to travel or get involved in costly activities. However, a person who requires residential care may find their costs of living increase as they get further into retirement.

A survey published by the UK Institute for Public Policy Research (IPPR) and PwC in 2010 revealed some worrying misconceptions about social care funding. Fewer than half (46%) of respondents were aware that care provision is means tested and barely one in five (22%) were taking steps to fund their own care.

Advisers address contingency planning

More encouragingly, new figures from the Association of Professional Financial Advisers (APFA) show that almost two-thirds (65%) of financial advisers are planning to advise people on their options for funding long-term care.

Many people also feel the need to leave some money for their children or grandchildren, especially to help them fund education fees or fund a deposit for a home. Again, your financial adviser should be the first port of call for these discussions.

“Liquidity and diversity of investment are key elements in effective financial contingency planning for the retirement years. The changes to the UK pensions regime will increase demand for income producing strategies that have embedded risk control to help protect capital while allowing those who are comfortable taking some investment risk in retirement to do so,” concludes Robin Stoakley, Head of UK Intermediary at Schroders.

What to discuss with your financial adviser:

The type of investments that can generate both a good income and growing capital to fall back on if your circumstances change

Whether income drawdown is an option for you

How much importance you attach to being able to leave a legacy

If you do not currently have a financial adviser, one option is to search for a local, independent adviser You may also find it useful to visit, where members of the public rate and review advisers they have used.

For more information on retirement solutions from Schroders, visit

“Liquidity and diversity of investment are key elements in effective financial contingency planning for the retirement years.”

*Source: ONS November 2014 

Important information: The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall. Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell. The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors. Issued by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.