Men used to retire at age 65 and women at age 60. That was the way it has been in the UK since the 1940s. That has all changed and is set to continue changing and create more of the repercussions rippling through retirement planning as I write.
The state pension age for men and women has been equalised at 65 and that common pension age has also been programmed to increase over time. It has recently changed so men and women now retire at age 66. By the end of the 2030s the state pension age is set to be 68. It is unlikely to stop there.
Anyone who has been following the latest court case regarding the Waspi movement will be aware of the mind-boggling sums of money that have accrued to the public purse through women’s state pension ages being increased from 60 to 65 in a short period of time. It is not hard to imagine the magnitude of the future amounts that can be saved by increasing the common pension age for both men and women from 65 to 70 and beyond.
Pensions are costly to provide, particularly pensions like the state Pension that are not funded in advance. Future taxpayers will bear the cost of providing state pensions for today’s workers and high tax rates are not popular.
Cutting the cost of pensions is easy enough to do. The amount paid can be reduced, or the rate at which pensions increase, or the length of time pensions are paid. Any one of those three methods can be used to lessen the burden of state pensions on future taxpayers. A combination of all three would be even more effective and that, of course, is what’s most likely to happen.
The long-term prognosis for state pensions in the UK is not good. We have recently seen the auto-enrolment reforms kick-start funded pension savings for millions of workers, but that reform came at the cost of our losing the state second pension.
At present levels of minimum contributions to auto-enrolment workplace pensions it’s unlikely many will accrue much larger pensions than they would have got anyway from the second state pension.
Auto-enrolment was a reform in the sense that previously unfunded state pensions will be broadly replaced by funded company pensions, but not a reform that in itself is likely to result in increased pension outcomes for many, if any of us.
My view is that the state pension in the UK will become increasingly less relevant over time, particularly for those entering the workforce in the 21st century. If people want to be able to leave work and retire when they are older then they will have to do so under their own steam.
The financial services industry, along with employers have a key role to play if millions of UK citizens in future are to have any real chance of a comfortable retirement at the end of their working lives.
Workplace pension schemes need to promote the value of deferring income and making substantial long-term savings, particularly those schemes that were recently established to accommodate just the auto-enrolment regulations.
Financial advice is important too. If ever there was time that working people needed to look out for their own interests and make the correct long-term financial decisions at the right time in their lives it is now.
Steve Bee is director of Work Life Benefits
Some valid points, although I remain sceptical of the role of the financial services industry when it comes to pensions..
Let us not forget that the UK pays the most parsimonious pension in the developed world – even now behind Mexico.
That people expect to retire at 65 or even 68 is a chimera. Life expectancy needs to fall dramatically if this is to be achieved and it is unlikely to happen. The pandemic hasn’t killed off enough to make a significant difference to pension costs. Therefore, we are left with the logic that pensions were only really originally designed to pay out for 5 or 10 years. Therefore age 70 is probably a far more sensible retirement age. This in itself raises the question of potential unemployment for younger ages – whether that point is valid or not is moot.
So, if we logically follow Steve’s discussion, it would seem that pensions anyway are hardly ideal and fit for purpose – whether private or state. (Unless it’s an ever-rarer DB scheme). IF the rules remain as they are all pensions are taxable, so that the tax relief is for many only loaned money at best. When the tax rises kick in how good was it to receive 20% tax relief at payment, with higher rates when taking benefits?
So, we are left with ISAs. No tax relief on contributions and provided governments don’t renege, then the yield, any profit and encashments are all tax free. Way to go? But we have to be able to trust UK governments – and that is a big ask.
In response to Harry Katz final paragraph I would expect that regular savings plans without any tax relief will be the future as pension tax relief is curtailed further. This in itself raises real problems for future Govt because there is less income to tax.
My view is we have to stop playing with auto-enrolment and make the contributions worthwhile. Perhaps as high as 20%, no opt out unless one hits the annual allowance
First of all pensioners are not a ‘burden’: they paid taxes and NI for their pensions. It is fascist to refer to any group in society as a burden; Hitler did something similar. The UK government are giving the worlds richest man, Bill Gates, substantial amounts of the taxpayers’ money for his Germ Games: see Gates’ own YouTube videos. The equivalent amount of money it would have cost to pay 50s women their pensions, about £200 billion, has been squandered on coronavirus with tax breaks for the rich:lower stamp duty to buy second houses; half price meals for people who can afford to eat out and would happily pay full price; furlough for jobs that should never have been destroyed in the first place (coronavirus is a scam; I read some doctors think the ventilators are killing people not the terrible new flu/pneumonia coronavirus) and trying to revive High Street already dying/dead due to move to Internet shopping etc And kickstart apprenticeships for young people instead of letting people retire to free up jobs. Many people in their 60s work as unpaid carers for parents 80+ and save government billions; that has to be taken into account as well. Retirement at 60 should be retained as an option for both men and women: they need the choice as they get older. Some will welcome working for longer, others need to retire.
“taxpayers’ money for his Germ Games… coronavirus is a scam…”
This isn’t Facebook Sue.
I went to a meeting with Steve Bee when he worked for the Prudential and his idea at the time was to build up family pension pots that could be passed through the generations.
I thought that the government had come to see that this was a good idea when they said that people could come out of DB schemes (schemes that died when you died) and transfer funds into DC schemes where the fund could be passed on to future generations (albeit with potential tax considerations).
Of course the FCA have knocked that on the head by saying DB transfers are only to be done after jumping through so many hoops to make it unrealistic.
Transferring into a DC scheme to create a family pension was be a great idea and the consequences of it in the future could have been enormous. Another opportunity missed because one department has got to big for its boots and thinks it is more important than the government.
Sue W, I don’t think Steve was not calling our dear pensioners a burden, rather the state pension system its self.
But I do get your sentiment.
The state pension (as I have said for many years) is a huge Ponzi scheme and dare I say, the worst of its kind because it will and does effect very single person in this country. The sword of Damocles ever hanging in the air…..who will be brave enough to let it fall and end it ?
As Harry said our state pensions are very poor even falling behind Mexico, soon there will be tribes untouched by the western world with better senior care than us here in Blighty !!
Auto Enrolment (AE) is a folly ill conceived, and badly run.
As for financial services, we are hated by the regulator, miss trusted by the general public, ignored by government, and so over priced (by our own admission) any real advice on regular premium pensions would render the whole exorcise, financially unviable !
So yes ….pensions are hardly ideal and I would argue the vast majority are not fit for purpose !
“It is fascist to refer to any group in society as a burden; Hitler did something similar.”
“(coronavirus is a scam; I read some doctors think the ventilators are killing people not the terrible new flu/pneumonia coronavirus)”
Oooh! Is this an escaped social media post?
Anyone having to rely on the state pension as their only source of income. Is in for a miserable existence when they reach retirement age.
The problem is getting people to plan for their own retirement when they have the funds available to do so. There are so many things demanding money that it is easy to put retirement planning on the back burner as it appears to be years away. However, time has a nasty habit of creeping up on people.
The job for life and defined benefit pension scheme are a thing of the past and most people will have to make their own pension provision and not just rely on their employer to do so.
I might as well throw some blue touch paper into the firestarter’s ring.
Average salary = £25K
Typical working Lifetime = 40 years.
Total lifetime earnings incl employer NI £1.14m
Total income tax and NI paid is approx 30% = £330K
Of the other £700K of net earnings there will be some VAT and duties paid but unlikely to be anywhere near £70K
Total tax £400K
Full BSP = £8.8K from age 66
Cost to fund with index linking (not even triple lock) £250K
Hmmm. Not much left for skoolz and ‘ospitals and pleecin’ and cycle lanes and Universal Credit and HS2.
The reality is that well over half the population will get out more than they put in however pitiful it is perceived to be.
It is, also most definitely, about time basic public sector pensions had a proper bit of an adjustment made to them.
Ever since the late 1980s government no longer contribute to the NI FUND, it is purely made up of employers and employees contributions , so I fail to see how the State Pension is funded by taxes ?? It’s our money in the incapable hands if successive governments who use it for purposes other than the state pension and earned benefits. They have pilfered billions from it one way and another over the yrs. We should all be demanding an independent body should be used to see that this stops now and the money used as it was intended when SP began in the 1940s. Waspi women would not exist if that were the case .
Steve Bee: Do your homework. There is an excess of £17 billion in the National Insurance Fund. Last year, this increased by over £5 billion. The Actuaries Department are forecasting that this excess could rise to £40 billion by 2024/25. I think to say that the current State Pension is not sustainable is a bit of a stretch given the excesses generated in previous years and for years to come. Articles like this are scaremongering and are just not researched well enough.