The problems of how we organise pensions worldwide are writ large across recent political and financial volatility. People are living longer, the ratio of workers to retirees has fallen sharply along with developed world birth rates, and immigration will no longer be a solution, either to the problem of generating economic growth or of paying for the retirement of an ageing generation, be it privately or publicly. 

Let’s not panic though; we can fix this. That’s the message from this month’s Fidelity Answers podcast, which dug into the issue of longevity with the help of Nic Palmarini, director of the UK-based National Innovation Centre for Ageing (NICA), and Katie Roberts and Julie-Ann Ashcroft, two of the Fidelity experts dealing with the sharp end of how to adapt pensions, savings, and investment to fit. 

Don’t panic, plan

Nic’s NICA institute, in collaboration with Fidelity International, has just completed a detailed survey of almost 12,000 retirees spread across 13 major markets that seeks to establish how ready they are for a longer retirement, what they are doing about it and what works better on that journey.

The survey reveals that 92 per cent of people aged over 50 underestimate their likely lifespan, by an average of 10.6 years, planning for 20-year retirements when on average they may need over 30 years of funding. Over a third (35 per cent) have done no retirement planning, and just 15 per cent seek financial advice.

“It's a question of awareness, culture, preparation, and adaptation,” says Palmarini. “What organisations must urgently understand, and support, is a decisive shift: helping people become ‘longevity relevant’ - relevant for themselves, to those they love, and to the society they are a part of.”

Redefine work

The macroeconomic numbers and tensions make it vital we think harder about these issues. In Europe alone, the number of over-60s has grown by 28 million since 2002 at a time when the population is stagnating; the working population will fall by another 3.4 million over the next five years. 

“It's a multi-dimensional problem and we are at an inflection point,” says Fidelity’s Global Head of Macro, Salman Ahmed. “In 2023, for the first time in human history, fertility rates dropped below the replacement rate. So that means that we are entering the zone where, as a whole, the population will stagnate.”

Whereas a peaking population in Japan during the 1990s led to an economy bereft of inflation and growth, Ahmed says the impact of a raft of countries ageing at the same time will see labour shortages and spending that will put additional pressure on inflation. 

“You have a big influx of retirees and the impact of longevity (on previous cohorts), so for some parts of the consumption basket that means more demand,” he says. “That adds to the inflation story.”

Longer-term, however, there are bigger structural questions. One obvious solution to the problem of a shrinking workforce is more automation or tech-driven solutions that replace existing labour needs. 

“If taxation codes are not changed, that (technological change) will add to the inequality issues and that will have political and social implications,” he says. “The UK is a good example of that. You will get sharp political moves towards the far left and far right, and inequality can be one of the channels through which that happens.”

Future ready

Fidelity’s Global Head of Client Solutions, Katie Roberts, works with the big institutional investors who are trying to square this circle. 

“Longer lifespans have increased the risk of individuals outliving their savings. At the same time, they are carrying more of the financial burden of both saving and investing for retirement,” she says. 

“If your time in retirement is going to be as long as your time in working life, you need to be taking a degree of risk with your savings pot because you want your assets to continue to grow.”

Her colleague Julie-Ann Ashcroft runs strategies that are focused on delivering investment frameworks which account for that process. She reports a steady change in the approach of savers to how they manage their pension assets after retirement. 

“We are extending the life of pensions in many areas by investing in risk assets well into retirement,” she says. “The aim is to provide some capital growth and protection from inflation, but also, by allocating to yielding assets, to generate a steady level of income alongside.”

How much that is happening differs by jurisdiction. 

“In the UK we might be investing up to 30 per cent of a retirement fund in equities at this point. In Germany, where there are still some corporate guarantees on defined contribution pensions, they may glide to 100 per cent cash. But that is starting to change. We're starting to see a shift [in Germany] towards investing in risk assets well into retirement.”

Ashcroft is well-versed in the longevity megatrend: part of her job is to identify and invest in the themes that will benefit from older populations. Those are wide-ranging, from the financial companies which will manage the western world’s huge savings base more aggressively, to gyms that will service lifestyles aimed at living longer, to “pet-gevity” businesses – the sector that will keep our animal companions in rude health too.

“The older population is far more willing to buy services and products that cater to their lifestyles. And that growing demographic is a growing consumer opportunity,” she says. 

“Wellness, consumer trends, gyms, supplements, travel. Then you have some opportunities that are harder to access, in mental and cognitive health for example.”

A third channel is the planet, the longevity of which is vital for our own – so, the energy transition, clean energy, or electrification.

“The two megatrends, climate change and demographics, are literally guiding us to redesign society and it's time to do it,” says Palmarini. 

“It's the first time in history that we have [the possibility of] five generations living and working together. We have an incredible opportunity to redesign society.”