The number of years we can expect to spend in good health is falling, according to a new report. But what are the financial implications for those saving for their retirement? By Tony Watts OB

For those of us involved in the later life sector for some time, the latest official figures from the Health Foundation came as no surprise. It’s the culmination of a trend that we’ve been seeing for some time now, and (worryingly) the UK appears to be an international outlier.

Over the past decade healthy life expectancy (HLE) in the UK has dropped by around two years to just under 61 for both men and women.

That means that there is now a significant gap between the time the average person stops being “healthy”… and when they can draw on their State Pension – currently 66 and rising to 67 by 2028.

The UK is one of only five of the richest 21 countries to see HLE decline, while its rate of decline was the second steepest.

There is no shortage of ideas on why we are struggling so badly with this… especially as those living in economically- deprived areas are affected most.

In England, Richmond in London had the highest rates of HLE at 69 for men and 70 for women; in stark contrast, in Blackpool it was 51 for men and in Hartlepool it was 51 for women.

But what does it mean for our retirement finances?

For those heavily reliant on the State Pension for part or all of their income, it’s certainly not good news. The “Income Gap” means that some may face a decade or more of poor health before being able to draw on their pension.

But early retirement could affect people from all socio-economic groups, forcing them to draw on their savings just to cover their day-to-day living expenses.

The years leading up to retirement are often those relied upon build up pension pots… but poor health could mean eking out a smaller pot over a longer period of retirement.

Then there is the very real possibility of needing care earlier. For those on the lowest incomes, this might well be provided by their local authority, but anyone with savings worth over £23,250 will be expected to fund themselves.

If your mobility is impacted, you may also need to pay to adapt your home; or, if that is not technically feasible, move to somewhere that can be. Not necessarily a low-cost option.

What do the experts say?

On the “bright” side, financial instruments such as annuities become more attractive for those in poor health as they may qualify for an “enhanced annuity” – increasing their guaranteed annual retirement incomes by 20–30% due to lower life expectancy.

Financial experts responding to the latest stats are also suggesting that savers with concerns about their longer-term health prospects consider building non-pension savings, including ISAs, to provide flexible funds if you need to stop working before you can access any private pensions or the State Pension.

Also ensuring you have the full State Pension to look forward to could also prove helpful – requiring you to have 35 years of National Insurance contributions in place.

And don’t forget to study the small print of your health, income protection and life insurance cover to ensure you and your dependents are protected against all contingencies.

Not forgetting…

Also worth taking on board is the advice of health professionals to make sure you are doing all you can to stave off preventable conditions for as long as possible by looking after your health and fitness!

Equally, common causes of long-term disability, such as strokes and heart conditions, can happen unexpectedly to those who appear otherwise fit: regularly checking out your blood pressure, cholesterol and blood sugar levels is the work of minutes… but could add years to your healthy life expectancy.

Finally…

If you want to stress test your retirement finances against having to leave the workplace earlier than you’d planned, then it really couldn’t be easier!

The RetireEasy LifePlan allows you run different scenarios to show how much income you can rely upon should poor health strike.

You can also build in potential outgoings for things like care costs.

All this for just the cost of a couple of coffees a month!