The longer we live the more we must save
The government statisticians’ forecast that the UK population will rise from 61m to 71m by 2033 gives 10m more reasons why the pension age needs seriously reforming. Lifting the retirement age to 68 by 2046 is far too late.
Life expectancy is getting longer even faster than Lord Turner thought when he tried to solve the pensions problem by recommending that postponement of the age people start collecting their state pension. Even since the millennium, the time a 65 year-old man can expect to live has risen from less than 16 years to more than 17.5.
People must put away enough during their working lives to pay for retirement, but if they want to work for 40 years and expect to live for 20 years afterward they need to squirrel away a very large part of their salaries. If they aren’t prepared to save more while also trying to buy a house and bring up a family, that means changing the ratio to, say, 45 years working and 15 in retirement.
As the state retirement age is a proxy for when people stop work and start collecting private pensions, there is no serious financial alterative to a radical change. Adding three years to the retirement age in 40 years time failed to get ahead of the curve: 70 by 2020 is the sort of language that politicians must talk. Tampering with the rules by making small changes followed by further small changes merely leaves people uncertain what they will face.
Perhaps some transitional help will be necessary for those too late to make changes but 1.4m people already work beyond 65 and that will have to rise. Compulsory retirement ages will have to change. For the many people whose jobs run out before 60 the prospect of an even longer wait for a pension must be dealt with, whether by taking more menial work or accepting a lower income. Pension providers will have to rethink their rates to consider later starts. The rule requiring pension pots to be turned into annuities by 75 must be lifted. Home-equity and similar schemes for turning houses into income need to be better formulated.
However, any pension reform must start in the public sector: workers in the private-sector cannot be expected to toil until 70 to finance civil-servants stopping before they are 65. But the greatest message from the Office of National Statistics’ population figures is that people must save for their retirement, whether through government schemes, corporate schemes or, probably best, through their own efforts.
