REBA Inside Track: Too ill to work, too young to save?
In his annual Chairman’s Letter to Investors, BlackRock CEO Larry Fink called out the widening gap between healthcare innovation that will extend our lives, and our ability to save for a retirement that will cover the cost of living longer.
“We focus a tremendous amount of energy on helping people live longer lives,” he said in the letter. “But not even a fraction of that effort is spent helping people afford those extra years.”
Fink gave the example of life-extending weight-loss drugs that, by reversing conditions such as obesity, could add 10 years to someone’s life – but will their retirement savings keep pace?
Retirement in the US (the focus of Fink’s letter) and elsewhere needs a rethink, he argued, from governments and employers as well as individuals.
Financial literacy, emergency savings, pensions adequacy, auto-enrolment- many of the US-based themes Fink references will be very familiar in the UK.
It is, says Fink, a crisis so significant that government and corporate leaders need to “stop business as usual” and “step out of their silos” to find a solution.
Staying well enough to work
But in the same week as Fink’s letter, the UK Office for National Statistics (ONS) released a starkly different view of the relationship between health and retirement.
Healthy Life Expectancy (HLE) - the amount of time we can expect to live in good or very good health - fell between 2011/13 and 2020/22, by 9.3 months for men and 14 months for women.
Although the ONS states COVID-19 played a part in the drop, this is a problem that should also be troubling governments and corporate leaders.
The current HLE for males in England is 62.4 years, and 62.7 for females.
In Wales and in some parts of England, that figure is significantly lower: for a male in the North-East of England, it is currently 57.6 years.
Rather than addressing the issue of how we will fund a longer, healthier retirement, these figures beg the question of how employees will work until a state pension age that is currently 3.6 years beyond the average HLE for a male in England.
Health and pension benefits need to work together
Fink and the ONS give two diverging pictures of a common theme: the current ageing population is struggling to stay well long enough to reach state pension age, but younger workers will have to rethink retirement saving for a future where they need to fund longer, healthier lives beyond work.
Both scenarios demand collective thinking about how healthcare and pension/savings benefits are designed and delivered in the workplace.
In the short term, helping employees improve their HLE, or at least to remain in work despite health-limiting conditions, requires preventative strategies, return-to-work support after illness, appropriately designed protection benefits, effective job design and good quality retirement planning.
But, as Fink projects, the long-term issues are different. Those joining the workforce today are likely to live through a golden age of healthcare, from harnessing the potential of AI and digital innovation, to new treatments that could reduce or erase life-limiting conditions.
That means saving adequately for retirement during a longer career.
To do so demands careful thought about whether current pension strategies are fit for purpose, both in terms of how we save and how we use our money in retirement.
“As a nation we should do everything we can to make retirement investing more automatic for workers,” says Fink.
But even he concedes that “the hour it takes someone to look through their work email inbox for the correct link to their company’s retirement system, and then select the percentage of their income they want to contribute can be an unclearable hurdle.”
The twin challenges of keeping the population healthy enough to work to a credible retirement age, and helping employees save enough for a longer life, won’t be solved by employers alone.
But everyone – government, industry, employers and individual employees - need to heed Fink’s call to step outside their silos, look at the long-term trends and rigorously question whether current health and pension benefits are fit for purpose.
