Four retirement super trends for the decade ahead, revealed by ANDREW OXLADE

The world of retirement saving has changed dramatically in my working career. The single biggest transformation has been the shift in responsibility.

If I’d started my career in the 1970s, I would have very likely had a final salary pension. I would have contributed little, if anything, and the payouts would be guaranteed. If investments flagged, my employer would make up the shortfall.

But I began working in the 1990s. As a result, it will be me, not my employer, who shoulders the risk of investments paying less than we’d hope. It will also be down to me to work out how to make that pot last for my retirement lifetime. In short, I’m responsible.

That is the most super of all retirement trends, leaving me – and you – to make many decisions, such as how much to save, how much to take out and even where to invest.

I doubt anyone realised back then quite how different the saving system would be 30 years in the future. And the same opacity applies today. We can, however, look at some of the trends gathering pace and speculate on where they may take us in the future.

Here, I’ve identified four areas for you to consider.

1. Finding adequate returns

The size of your retirement pot will be decided by three factors – how much you save, how long you save, and the investment returns you achieve. 

The first two you can control, the third you can’t. It seems that ever since I began saving for retirement, returns have beaten what was expected. 

Back in the noughties, the regulatory guidance was to expect returns of 7 per cent a year, later reduced to 5 per cent and then scrapped. 

Stock markets actually delivered blistering returns in my pension saving career to date, notching up average total returns of 9.1 per cent a year since 1997 for the MSCI World stock market index. The last decade has been even more remarkable with 13 per cent annual gains.

But there’s a but. Because markets have done so well, they look expensive versus historic norms. 

The US market, inflated by the excitement over tech stocks, is looking particularly lofty. 

Fortunately, better value can be found elsewhere. Fidelity’s January Outlook highlighted Asia, Europe and the UK. Emerging markets appear cheaper than the rest – an option for those who can stomach the extra risk.

It may be a simple case of leaving yourself less exposed to the US. As this chart from the Schroders Equity Lens shows, non-US shares are at a 44 per cent discount to US shares.

2. Overcoming pensions nihilism… and wild risk-taking

When I ask 20-somethings about retirement, I detect growing despair – a pensions nihilism. Retirement saving is not a priority. 

Understandably, the focus is on clearing student debt and buying a first home. I’ve heard this described as the young saver’s trilemma: house vs debt vs pension.

A byproduct of saving nihilism is that young people are more attracted to quick profits. A penchant for risky investments among younger investors has always been a thing. I did it. But it was particularly apparent in the Covid lockdowns. 

Young investors widely backed meme stocks being hyped on social media. More recently, the surge in the price of bitcoin has further gripped the imagination of an array of investors, particularly the young. 

In fact, 14 per cent of 20-somethings confess to having dabbled compared to 3 per cent of 50-somethings, according to UK data from the Fidelity Global Sentiment Survey.

Many will be sitting on big returns. However, investors are often blithely unaware of the risks they’ve taken when they’ve achieved such gains; it could so easily have gone the other way.

I hang on to the notion that patience is a virtue. Legendary investor Benjamin Graham said investment success came from ‘acting consistently as an investor and not a speculator’. His prodigy, the billionaire Warren Buffett, continued the theme: ‘The stock market is designed to transfer money from the active to the patient.’

The patient investor would take advantage of their employer’s pension matching, rather than opt out, backing long-term investments that offer the prospect of long, steady growth. 

Saving into an Isa or a Lifetime Isa is also tax-efficient and can be helpful for raising a property deposit.

And unlike crypto profits, traditional investments, such as in funds and shares, can easily be protected from taxes, such as capital gains tax, by being held in a pension or Isa.

The government should be considering the level of long-term savings nihilism in the young. 

The forthcoming review of pension saving, which also includes a review of Lifetime Isas, could skew saving incentives further toward younger savers. 

There may be other ways to encourage intergenerational gifting, given the widening wealth disparity between young and old. Watch this space.

3. Pension taxation

Tax changes can have a huge impact on pensions. One simple tweak in the Autumn Statement is likely to have a butterfly effect on pension planning for decades. 

The Government moved unspent pension pots into the inheritance tax net. Couples with no liability, due to a joint allowance of at least £650,000, will find after 2027 that they do. 

Even if they qualify for the £1million joint allowance, because their estate includes property and it is being bequeathed to direct descendants, they may still be landed with a bill.

The knock-on impacts are numerous. It increases the appeal of annuities, where you hand over your pension in return for a set period of income payments. 

It encourages earlier gifting to family, to avoid inheritance tax. It also increases the appeal of spending it all.

The changes will unlikely end there. There has been an ebb and flow of speculation as to whether the 25 per cent tax-free amount that can be taken from a pension will face a lower cap. 

Currently, you can take £268,275 but this could be limited to £100,000, only affecting pension pots worth more than £400,000. And pensions of more than £400,000, it might be argued, are owned by the rich.

Finally, the UK system of allowing us to put money into pensions before it is taxed is more generous than you find in most countries. This could be made less generous. I’d take advantage while you can.

4. Working longer: can you embrace the ‘CHILL’ approach?

There is a conundrum in the pensions world. Most of us want to retire early – some are desperate to. 

Yet there is growing evidence that working longer is better for us – for physical and mental health, for purpose and for our finances. 

It is also better for society, meaning more employment, more taxes and less demand for health services.

Whether we like it or not, pension ages are rising. The state pension age will rise from 66 today to 67 in 2026-28 and to 68 by 2044-46. 

Steeper rises are likely. The International Longevity Centre, where I’m a trustee, has suggested an age of 70 or 71 will be needed by 2050.

The age you can access your own pension savings, known as the minimum pension age, is also rising. 

In 2028 it will rise from 55 to 57 and then it is expected to track 10 years below the state pension age.

These increases are seen as necessary in the age of the 100-year life. A rethink of our approach to retirement is also needed. 

The traditional pattern of the three-stage life – education, work, retirement – could be replaced by one where career breaks are the norm; a time to retrain, reskill or recharge. 

Employees could be more focused on finding roles and industries where they love their work and therefore want to work longer, perhaps as a passionate part-timer.

I have called this Career Happiness to Inspire Longer Lives (CHILL). It is an attempt at an antidote to the FIRE movement – those who want Financial Independence to Retire Early (FIRE). They do this mostly through extreme penny-pinching to enable saving of 70 per cent of income – a bold target.

Increased part-time working in retirement is a trend that is well advanced and only likely to snowball, be it from want or need. 

A research paper by Fidelity Investments, which focused on US employees, found that in 1990-2000 nearly 50 per cent of people went from work to full retirement. 

By 2010-2020 this had fallen to a little over 30 per cent. The proportion going from employment to permanent part-time work rose from 11 to 20 per cent.

I expect government and companies to do more to encourage people to keep working, part-time or full-time. More of us will do it. My hope is that more people will do it, on their own terms.