WOULD YOU LIKE TO RETIRE AT 70?
How attractive is the idea of retirement at age 70? Probably not very!
A recent speech by an influential adviser to the Government, has raised the realistic possibility that the State pension should be only available from age 70. This could happen sooner than you think.
We explore why you are likely to have to wait to get your State pension in the future. We go into the reasons behind this, and explore possible solutions.
- Proposals to move the State pension age to 70 are based in reality
- The State cannot afford to supply pensions in their current form
- Further changes are likely in the future
- We are not saving enough as a society
- What you should be doing
The current State pension position
Currently, men get the State pension at age 65, women from age 62. If you retire after April in the years below, then this age will no longer apply.
In 2016, the State pension moves to a flat rate scheme, which replaces the current scheme.
From 2018 the State pension age is due to be equalised at age 65 for everyone from 2018. Women aged between 62 and 65 between 2018 should check your retirement date (see the link below).
From 2020 the State pension age will rise to age 66 for everyone.
From 2028 the State pension age will rise to age 67 for everyone.
- After 2028
After 2028 the State pension age will rise in line with life expectancy. This means we could expect it to reach age 68 by around 2035, and age 69 by the late 2040s, and age 70 by 2063.
How to be sure of your State pension age
If you are approaching the age for State pension, use the State pension calculator to check the date your pension becomes due.
Moving the State pension age to 70
Lord Turner is a former head of the UK financial regulator, and was Chairman of a very important Commission on pensions. He suggested in a speech this week that the State pension age should reach age 70 by 2040. That sounds like a long way off, but any change would be likely to affect us all. This would mean that the date when you get the State pension would be likely to get pushed back even if you retire before 2040, as these changes tend to get brought in gradually. This has happened previously, as changes to the State pension age were accelerated due to cost-cutting measures. Thus, if the proposals were accepted, all future changes to the State pension would be brought forward.
Lord Turner also suggested that we force people to save into their pensions. Currently under Auto enrolment rules all employers must set up a pension scheme. Under these schemes, both employers and employees must pay into the scheme. However, employees can opt out of the pension. Lord Turner’s suggestions indicate he would prefer this not to be an option.
Why is this relevant?
These are not idle proposals. They are based on a sound understanding of the complexities of the UK pension situation. Lord Turner understands the pressure that the Government is under to be able to afford to fund the State pension system. This costs an enormous amount of money, especially in the current economic environment. Currently, we spend £85bn on funding for old age, with the total budget for the Department for Work and Pensions being £135bn, or 27% of the Government’s budget. Tweet this.
Why does the Government need to take further action in the future?
- We are living longer
According to the Office for National Statistics life expectancy is increasing quite rapidly in the UK. For example, in England & Wales the average life expectancy for people who reach age 65 changed from 2008 to 2012 as follows:
- Men – from 17.6 years (age 82) to 18.5 years (age 83)
- Women – from 20.3 years (age 85) to 21.1 years (age 86) [Source]
- This means that the Government has to pay the State pension for an extra year, and this has taken place in just 4 years!
- Fewer tax payers
The State pension is funded by tax contributions from the current year. Therefore, as the population ages, there are fewer tax payers as to pay for the pensions of the retired. This is only likely to increase the strain on the State.
Based on the above, this is why the State is already taking action in this area. Lord Turner’s proposals only emphasise that he believes that we are not going far enough, or fast enough.
State pension changes save money
The changes to the State pension highlighted above are aimed at reducing the cost to the State. These will take some time to filter through, but the Department for Works and Pensions estimates that savings will start to be seen by 2040 [Source]. By 2060, the State’s spending on pensions will reduce from 8.5% of GDP to 8.1% of GDP. Abolishing contracting out of the Second State pension will save £5.5bn from 2016/17. Tweet this.
We are not saving enough
Another report shows that 20% of UK workers already expect to work past age 70 anyway [Source].
- 44% in the survey said they expect to retire after age 65 – twice the average globally
- 25% said that the State pension was expected to be their primary source of income (half the rate in Europe)
- 35% said that personal savings were expected to be the highest source of income
- 29% said that company pensions were expected to be the highest source of income.
What does this say? We are probably not saving enough.
What are your options?
You can infer from this article that the entitlement to the State pension is only likely to get worse in future years. This is due to the fact that the State cannot afford to provide the benefits at current levels.
- Don’t rely on the State pension
At £144 per week from 2016, the State pension is unlikely to keep you in the style to which you are accustomed! Therefore, if you want a better standard of living in retirement, don’t rely on the State pension to supply it for you. If you are younger then 40, you should seriously question when you are likely to receive the State pension as those currently aged 5o won’t get it until age 67. This assumes that the benefits will not be further reduced before that date.
- Start saving now
The earlier you start saving towards your future, the longer you will have to build up a pot of money on which you can rely. This does not have to be in pension funds. It can be in any form of investment or savings you can think of.
- Find out what you are entitled to get at retirement age
If you are getting closer to retirement age, you should start to find out what you are entitled to get from the State pension, company pensions and personal pensions. To help you with this, we have produced a free retirement check list.
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