BRITAIN faces many challenges, but none more daunting than our ageing society and the financial challenges it will create for future generations.
There were 807,766 live births in the UK in the past year, and the Office of National Statistics (ONS) predicts that one in three will live to be 100 years old. Today there are 13,420 living centenarians, vastly exceeding the 300 in 1950. By 2112, the balance of the population will have shifted even further.
The consequences of this shift are far-reaching. According to Scottish Widows research, on current trends the implications could be bleak. This new generation of centenarians will face a hat-trick of financial pressures by the time they hit their mid 20s.
While those born in 1983 are already forced to prioritise major life decisions – the average wedding costs £21,000, the average student loan is £8,700, and the average salary at 21 is just £22,000 – the pressure to prioritise will likely intensify. Taking only finances into account, our projections suggest 2012 births won’t get married until they’re 33, won’t be able to have their first child until they’re 31, and the average wedding will reach a massive £39,000 (adjusted for inflation).
Without major policy changes, the next generation of centenarians will also face student debt levels of £73,000, which they will only clear when they are 52 years old.
And to respond to these major adjustment, financial products will also be forced to change. Mortgages will adapt to a nation of centenarians by allowing borrowers to pay loans back over a longer period of time. The idea of merging pensions with other savings products, such as Isas, could also help this future generation face up to the twin challenge of saving for short-term financial hurdles, while putting aside enough for retirement.
But centenarians will still have to work for longer. Our forecasting predicts that the state retirement age will be at least 70 by 2100 (and probably more), and an increasing proportion will work well beyond their 70th birthday.
It’s not grim news, however. The nature of work is also likely to change to suit an older workforce. Flexible and part-time roles will become standard. Average life expectancy will also increase significantly and, according to the ONS, 2012 births will likely live until they’re 92 years,
But for a comfortable retirement – projected to cost an average of £2.391m, up from the £1.032m for 1983 births – long-term saving will need to start by at least the age of 25. A longer life, without a damaging collapse in living standards, is inevitably extremely costly.
More flexible financial products will help to alleviate the financial pressures placed on the next generation of centenarians. But a shift in long-term saving needs to start now. With early understanding of the complex realities of their long lives, hopefully our children will take this lesson all the way up to their 100th birthday.
Iain McGowan is head of investment propositions at Scottish Widows.