Life expectancy in Britain has risen by 10 years over the past fifty years or so. In the 1960s, men were statistically unlikely to reach their 70th birthday. Today, the average life expectancy is 79 for men and 82 for women.
But we might not be able to enjoy all those extra years as a long and leisurely retirement, because we might still need to work.
Why living longer may mean working longer
The state pension, was originally only intended to fund four or five years of pension payments for men who retired at 65 (and a little longer for women who retired at 60). The state can’t afford to pay it out to retirees who live for decades.
Millions of pensioners living longer means billions more for the state to find to fund pension payments. It’s made worse by the fact that slowing population growth means proportionally fewer working people to provide the funds.
A real hike in state pension age seems to be the only answer. The Government has already announced that the state pension age will rise from 65 to 66 by 2020, and to 67 by 2028. But in 2016 Chancellor George Osbourne warned that will be just the beginning. State pension age is set to rise to 68 by the early 2030s. It could reach 70 by the middle of the century, and it may not stop there.
The Government has a scheduled assessment to be carried out every five years to ensure the state pension remains affordable and keeps up with demographic changes, and more revisions to state pension age look inevitable. The figures involved suggests that workers joining the workforce now will not be receiving their state pension until at least their mid-70s.
A global trend
The question of how to support an aging population a problem shared with much of the developed world. Japan, the US and countries across Europe are all looking at increasing their retirement ages, although none currently seem to be taking them as high as is proposed in the UK.
What this could mean for you and your retirement?
Having to wait a just a couple more years to collect your state pension might be irritating, but it is something many of us would be prepared to live with, as long as we are in good health, and enjoy our work.
It may be less acceptable if we are involved in physically demanding work or have medical problems. Not everyone will be able to work until they are in 70, let alone 75. Many people are forced into early retirement by business changes, health problems, or family responsibilities.
But no one is suggesting that you can’t retire earlier than the official state pension age. You simply need to build up a larger personal pension pot.
How much extra will you need?
The state pension is not exactly generous, but it does provide a useful regular income which we can add to our workplace or private pension.
So, if you still want to retire at 65 when the state pension age becomes 67 in a little over ten year’s time, you simply need to find a way to replace two years state pension, which is currently £155.95 a week.
This would be relatively easy to do with many kinds of personal pension. By putting away a little more now, you should be able to plan to draw down that much as a cash lump sum, or in stages to part fund your two years ‘early’ retirement. Most of your income will come from your own pension arrangements.
When you do reach state retirement age, you can collect your state pension. If you have done your calculations correctly, you should continue to enjoy the same regular income without interruption, although it will be boosted by your state entitlement instead of your own extra provision.
Looking a little further
The same principles apply if you are still young enough to be threatened by further hikes in retirement age. If you start making extra provision now, you can still enjoy retiring earlier than the government suggests. Funding an extra ten years of retirement before you can start collecting the state pension may sound a little more daunting, but you can console yourself that you have longer to do it, and that the amount you put in will have longer to grow.
What should you do?
Most of us would simply like to be as wealthy as possible in retirement. Whether we can afford to do it before the state pension kicks in, or even if we can afford to retire then will depend on making the right decisions now.
The first decision to make could be to get expert advice on the best way to build up the saving you will need. Simply call us at Continuum.