Forget millennials, pension funds looking for growth should be targeting cash-rich retirees. Mark Dunne examines the benefits of investing in people of a certain age.
Rising longevity has traditionally given pension scheme trustees a headache. Projections that current retirees will live longer than anyone who has come before them have increased the longevity risk for pension schemes.
However, far from being a curse, could the problem prove to be a blessing for pension funds looking for long-term growth?
People living longer has put schemes on a journey to generate more cash to pay extended benefits, but older people are not what they once were and what they take with one hand, they could give back with another. “They have a problem structurally with people living increasingly longer,” Lombard Odier fund manager Meret Gaugler says.
“On the flip side of that there is this huge opportunity that has another 15 years to 20 years of runway and we understand why they want to seize the good part of it when they already have to deal with the bad part of it,” she adds.
AN AGEING MARKET
In the UK, there are believed to be more than 10 million people aged 65 or over, a number which is expected to double by 2050.
These people should not be viewed as a drain on the country’s healthcare resources or a problem for defined benefit (DB) pension funds, which have to generate more cash to pay their extended benefits.
“That is the doom, gloom and despondence side of it,” says Frances Hudson, global thematic strategist at Aberdeen Standard Investments.
But this generation of retirees is different. They enjoy a more active life than their parents did at their age. They are also fitter and, more importantly for investors, wealthier than the generations that came before them.
They are not planning day trips to Blackpool to relieve the boredom of staring at the same view from a care home window day after day, broken up only by a few games of bingo. They want more. They want to travel, to take in more experiences and they have the means to do it.
