It’s time to bring retirement into the
twenty-first century

Tony Stenning |29-Jul-2016


We live in an era of unprecedented financial freedom. And to help people feel more positive about retirement, we need a radically new discussion of what it actually means to retire.


Many of us can hardly bear to think about retirement, never mind talk about it. Others – just under half, according to our latest Investor Pulse survey – do save for old age, but with no confidence that they will get the income they want at the end of it.

After all, when many of us started our careers, employers had to provide retirement income, not employees. But due in part to significant gains in life expectancy, these final salary schemes are disappearing – and the defined contribution schemes that replace them shift the burden firmly onto workers.

To make things worse, Investor Pulse also revealed what Britons like to do rather than put money into their pension: hold cash, the lowest-returning asset class. Around two-thirds of the average British portfolio is in cash.

This mix of less generous pensions, greater personal responsibility, longer lives and a love of cash, means many Brits who don’t prepare now are sleepwalking into an insecure old age.

But it doesn’t have to be like this. We live in an era of unprecedented financial freedom. And to help people feel more positive about retirement, we need a radically new discussion of what it actually means to retire.

Let’s change how we think about retirement

The first thing we need for retirement in the twenty-first century is an arrangement that is more flexible.

But perhaps more importantly, we need something that puts the power in your hands. Rather than waiting for retirement to “happen”, we need a system where you set the rules. The name for this “rebooted retirement” is “salary independence”.

Salary independence is based on a simple but powerful concept. Rather than thinking of being a worker and then a retiree, instead you are “salary dependent” and then “salary independent”.

The former means what it says – you are dependent on your salary to support yourself. The latter is the state you reach when you no longer need to rely on your salary to live – when the assets you have built up can support the lifestyle you want.

Forget about the size of your pot

The first step towards salary independence is to stop thinking about the size of your pension pot. Rather, think about how much income you could survive on happily if you didn’t have to work. Would £18,000 cover it? That’s £1,500 per month before tax.

This figure really matters, so it’s important to get it right. When you earn enough from your investments to cover that amount, you’re free to stop working or to continue if you like.

Invest or save?

One of the best bits of thinking about income rather than pot size, is that it helps you consider the best method to achieve your goals.

One option is to save more. In this case, simply up the percentage of your income that you put in each month.

Another option is to save better. This could involve a stocks & shares Isa that you pay into each month alongside your pension. Thanks to compound interest, you don’t need to put masses in to benefit. Our calculations show that investing £2,500 per year (just over £200 per month) for 40 years would give you more than £7,500 annual income for the rest of your life.

By investing your money, rather than leaving it sitting in a current account, you might be able to reach your goals with less input. That would mean more disposable income in your pocket.

It’s in your hands

The key to salary independence is freedom – the freedom you have to control all of the variables in your own financial future.

By thinking about how much income you will need in your old age, you can recalibrate your priorities. Do you want to work longer to achieve that income? Save more? Invest the spare money in your current account? Whatever the choice – it’s up to you.

Tony Stenning
Managing Director, Head of Retirement for EMEA
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