Longevity and a decade of historically low interest rates have created “a dangerous cocktail” for the over-50s generation, according to new joint research by the London Institute of Banking & Finance and Seven Investment Management.

The researchers said the findings “raised a series of warning flags for policymakers”, as they revealed a generation approaching retirement “dangerously unprepared, with little understanding of the pressures their assets might come under for funding both the essentials and their aspirations in later life.”
 
The results were from a survey of 2,000 over-50s with at least £50,000 in assets, including their home and pension savings.

This cohort is less likely to be able to access benefits and more likely to have to rely on their own resources and the average value of assets among them, including property, pensions, investments and cash, was £523,857.

The research found that while older Britons were good at counting the pennies, their caution meant many had missed out on one of the longest bull markets in history.

Instead, they watched their savings languish in cash accounts generating returns from record low interest rates that have often failed to keep up with inflation.

The result has been that many do not have the savings in place to retire comfortably, are under-prepared for the financial challenges they may face in later life and are unrealistic about how far their savings will stretch. 

The findings showed:

• Just half of those not yet retired felt well prepared for the day they stop work and 35% worried about how they will manage financially in retirement.
• 38% admitted they were going to have to work longer than they had planned and nearly half (47%) said they knew they needed to save more for retirement.
• Despite property values accounting for more than half of total assets in the group, less than one in 10 planning for later life were currently considering either downsizing (5%) or releasing equity (8%).
• Just 8% say they had plans in place to pay for later life care (even though 73% saw preparing financially for later life as an important objective and 72% realised that they would have to pay for it themselves).
• 20% of those approaching retirement age (50-59) had taken financial advice.
• 22% still did not have a Will despite most planning to have one.

Justin Urquhart Stewart, co-founder and head of corporate development, 7IM, said: “This generation has been badly let down by a perceived absence of affordable financial advice and a lack of financial education.

“Many people have been cautiously squirrelling their money away into cash savings products at the time when they could have been thinking about investment risk and the power of compounding returns.  

“Whilst investment risk might not be for everyone, and we all know that stellar stock markets gains can easily be reversed, too much caution can actually cost as inflation has outstripped cash returns – something many people are worrying about themselves.

“Longevity means they need their retirement savings to stretch further than any generation before them – over 20 years for today’s 65-year-olds, on average.

“The findings show that the financial situation for a large number of over-50s is far more precarious than was previously recognised.”