Article by Phil
It looks like more bad news for younger workers. A recent financial study from the International Longevity Centre (ILC) has calculated that the state pension age will need to rise to 70 years old, sooner rather than later.
The state pension bill is currently £100 billion a year which has trebled over the last 20 years. If it continues at the same rate it will soon become unsustainable. The government has already set plans in place to increase the state pension age, but it seems that these aren’t going to be enough.
At the moment the state pension age is 66 and is set to rise to 67 for those born on or after April 1960; and then rise to 68 between 2044 and 2046 for those born on or after April 1977.
The ILC study looks at a number of factors including the number of people who reach state pension age and it’s this element that is causing most concern. If the reduction mortality rates continues then the ILC estimates that the state pension age will need to rise to 70 by 2042, or in other words in 20 years.
That won’t affect a lot of people but those born after 1977 need to look out. There’s no doubt that taking pension advice and looking at a private pension solutions is vital if you want to be able to retire anytime soon.
Even if you do reach the new state pension age let’s hope the issues in the system itself have been ironed out. The Public Accounts Committee (PAC) has just released its latest report on pension underpayments which doesn’t reflect kindly on the Department of Work and Pensions (DWP).
Hargreaves Lansdown have just released figures which show just how under prepared savers are for their retirement. In their latest survey (January 2022) they found that only 40% of people were “on track” to achieve a reasonable retirement income. This is defined by the Pension and Lifetime Savings Association as being £20,800 for a single person and £30,600 for a couple (including state pension contributions). Some people might think that these are already modest levels of income for retirement.
Unsurprisingly, the wealthiest are most likely to have their retirement plans in order with over 70% said to be “on track”. Things get progressively worse the lower down the income scale you go.
Worryingly, only 17% of the so called “generation Z” born between 1995 and 2005 were estimated to be “on track” to achieve a moderate level of pension income. When you think about the rising state pension age these could be the worst affected.
Time to take positive action on pension savings and Pension Advice.
It seems however that the government is dragging its feet. There has been criticism of the Pensions Minister for not implementing changes to the auto enrolment system to improve retirement prospects. The industry had called for contributions of 8% to be applied to the whole of earnings rather that a limited amount and for the age of enrolment to be reduced to 18 from 22, but the government has resisted the calls.
As Guy Opperman succinctly put it “The government needs to realise the urgency of this issue. A whole generation of people who missed out on defined benefit pensions and are only building up modest defined contribution pensions could be set for a miserable retirement unless the pace of change is increased. Good intentions are no longer enough, we need action”.
