14th April 2017 at 7:00am
Some people will tell you that retirement seems increasingly illusive, indeed that they may have to ‘work until they drop’. Others will tell you they have no intention of retiring, at least not in the traditional sense of ceasing all work. Very few will tell you they have it all planned out.
The recent report from John Cridland and published by the Department for Work and Pensions has reinvigorated the debate about when people can retire. He was asked to review future increases to the age at which State Pension can be claimed.
His conclusions, naturally, reflect increasing longevity and he recommends further upward moves in future decades.
State Pension: what we know now
- The new State Pension, introduced in April 2016, is around £8,000 a year for those achieving 35 years of paying National Insurance
- It can be claimed at age 65 for men, slightly earlier for women. By November 2018, it will be equalised at 65 for both men and women
- This will steadily increase to age 66 between December 2018 and October 2020.
- It will increase again to age 67 between 2026 and 2028
John Cridland was asked to consider what increases might look like beyond 2028, and he concluded that a further increase to 68 should be scheduled between 2037 and 2039.
If you look far enough ahead, it’s not difficult to see that future generations will probably need to wait until they are 70 before claiming their entitlement from the State.
“Our life expectancy is increasing by around 5 hours a day”
It’s interesting to pause for a moment and look back at the history of the State Pension which was introduced in 1908, and was only payable from age 70. In reality, only one in four people lived long enough to start claiming it, and few did so for more than a few years.
In practice, the State Pension started more as an insurance policy to protect people against the risk of living longer than normal. It wasn’t until the post-war 1940s when it was upgraded to deal with the rising poverty amongst the older generations.
This was quickly followed by the growth of final salary pensions, both within the public and private sectors. When people talk about the ‘baby boomers’ (defined as those born between 1946 and 1964) they often conjure up images of those whose pension promises are generous, whose housing wealth is significant, and whose State Pension is payable relatively early.
For some, that’s true, but of course others were not so lucky.
Many people worked for a small, private sector employers with no pension scheme (never mind a generous final salary scheme), and never did manage to buy a house and – for women – the State Pension age has increased quickly.
For this group, new workplace pension savings will help, along with any other savings or inheritance, but many will rely on the State Pension as their main form of income in retirement. As such, it’s clearly of great importance that the age at which people can take it is balanced between the needs of those who rely on it and a more general requirement to ensure it is sustainable over the long term.
We are living longer
The review recognises that longevity – while it should of course be welcomed – is a risk to the sustainability of the State Pension. Recent estimates suggest that our life expectancy is increasing by around 5 hours a day.
Retirement will look different in future
What’s clear is that the future of retirement for today’s children is somewhat different.
In all likelihood, they will find themselves enrolled into a workplace pension from the point they start work, then with every employer thereafter.
Over several decades, they will build up a significant pension pot, which at some point (currently age 55), they will be able to access as they wish. For them, the State Pension age will be in their late 60s, if not 70.
But they’ll be living longer – and hopefully healthier – lives.
Things are already changing
They’ll probably have a different view of retirement, if it’s still called that. Instead of ceasing work, they may gradually change the nature of the work that they do or the hours they commit; a trend that’s already begun.
One thing’s for certain, they will benefit from the knowledge of those who have gone before. And they will be well advised to listen closely to that and to take control. Gone are the days where the employer is on the hook for everything in work and retirement, and it’s unlikely we’ll ever see a State Pension being paid earlier.
So Generation X – my generation born in the 60s and 70s – and those that followed will need to take ownership of their own retirement plans, albeit with some nudges along the way.
Taking control of saving for their later years means they will have more control over the age they retire in the future, and will have less reliance on predicting what will happen next with the State Pension.
The flipside is that those who can’t afford to (or don’t) save are those who will have no option but to retire on the State Pension alone, at whatever date is set for them.
Finally, with some 10 million people currently alive in the UK expected to live past 100, it seems unlikely that any monarch would have the time to sign such a large volume of birthday cards so this tradition may well be under threat. Perhaps that date will move, too, with people instead throwing parties for their 121st birthdays.
More realistically, perhaps 70 will indeed be the new 60 before we know it.