Is 70 the new 65?

By Drew Mitchell

The UK pension industry finds itself at an interesting time – stuck between an impassable mountain of financial promises and an ever-growing population that seems to outlive the previous generation for longer and longer. Even if the tens of millions of future pensioners beat life expectancy by just a single month, the pay-out would be colossal.

But what does the evidence say? Can we really be sure the unforeseeable future generations of super babies will leech the government for every penny they’re worth?

Since the late 1900’s life expectancy has grown for males by approximately seven years, and for females around six – as due of technological advancements, medical breakthroughs and nutritional awareness leaving both men and women with more time on the clock – the latter predominantly outliving their male counterparts throughout history (as seen below).

However, it seems recent studies have turned the tables on this trend – with the predicted life expectancy once used to calculate pension pay-outs instead being too long. The Continuous Mortality Investigation indicates the rate at which life expectancy is improving is in fact declining – leading the PWC to claim a predicted drop of £310bn from the increasing debt. This is an unexpected step forward for companies when dealing with this financial burden, in turn  

The state pension however encompasses a far larger audience – around 13 million to be more precise, and whilst for some nothing but extra pocket money, those without a dependable financial future will feel the changes far more significantly. One of these changes took place earlier this year, with the proposed rise in the pension age being pushed forward a minimum of 5 years – heads up those between 39 and 47!

However, does this proposed increase extend the working life of the average Brit a little too far? When considering the healthy life expectancy in different regions around England, the results are even more varied than one might expect – with a difference of over 15 years between the two most extremes (2012 – 2014). As much as we live each day for the next 9 to 5, maintaining a healthy physical and mental persona can become increasingly difficult with age, especially when retirement runs farther and farther down the line.

So how do these statistics translate into pension provisions? Quite simply people in the UK, regardless of region, are living longer, meaning pension funds, both public and private are going to have to increase to account for this. Inevitably this will mean it will become increasingly more likely that individuals will no longer be able to solely rely on the state to provide an income for them when they eventually stop working. The government is more than aware of this catastrophic issue that our generation is now facing as can be seen by the vast number of recent changes that have been implemented and planned for the coming years following a century of very few adjustments.

 

Timeline for State Pension Age in the United Kingdom (1908 – 2069)

 

1908

Old Age Pensioners Act passed providing means tested benefits for people over 70

1925

Widows, Orphans & Old Age Contributory Pensions Act introduced to provide the first contributory state pension scheme funded by contributions from both the employee and employer

1940

Old Age & Widows Pension Act introduced that broadened the benefits available to women

1946

National Insurance Act 1946 introduced a universal contributory state pension funded by national insurance contributions by workers

1978

State Earnings-Related Pension Scheme and guaranteed minimum pensions begin

1995

Pensions Act 1995

1997

Minimum funding requirements begins

2002

End of State Earnings-Related Pension Scheme and start of the state second pension and state credit pension Act

2004

Pensions Act 2004

2005

The Pensions Regulator and Pension Protection Fund start

2006

Pension Simplification

2010

The state pension age starts to increase from 60 to 65 for women

2012

Personal Accounts begin to be phased in

2018

The State Pension age is equalised at 65 for both men and women

2020

State Pension age increased to 66 for men and women

2027

State Pension age increased to 67 for men and women

2039

State Pension age increased to 68 for men and women

2047

State Pension age increased to 69 for men and women

2054

State Pension age increased to 70 for men and women

2062

State Pension age increased to 71 for men and women

2069

State Pension age increased to 72 for men and women

 

The issue is then compounded for sporting professionals as not only is their working life and time being able to accumulate wealth vastly reduced (usually only between 10 – 15 years) they will arguably live longer than the “average” office based 9-5 individual.

Of course, the only real way to ensure that you are maximising your chance of providing “enough” for your own retirement is to continue to save as much as you can for the long term, in a comfortable and affordable manor. Individuals will often save over a 12-month period to go on a two-week holiday but put very little thought or effort into saving for the biggest holiday of their lives after they retire. Even if this is now more likely to be at the age of 70 rather than 65, the latter 5 years will not provide ample time for fund growth if you have not started your provisions early enough. With the ever-improving science of modern medical technology, our generation can expect to survive even longer than the last so it is vital for people to be well enough prepared, whether this is taking advantage of the tax relief on personal pension arrangements or the flexibility and increased annual allowance that a stocks and shares ISA offers. Both options can be used to supplement an existing employer contribution pension and offer a diversified option also providing some security of being in control of one’s retirement funds and limiting any exposure to pension deficit which might arise from an employer scheme.

An extremely common question of course is “How much is enough?” This varies wildly between individuals dependant on all manner of factors, such as your current and desired lifestyle, if you have children and grandchildren, where you are looking to spend your retirement and of course your current health.

It is important to review your pension and retirement arrangements regularly as we all know that life as well as the UK government has a habit of changing circumstances without too much warning.

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