Can our pensions, savings and advice infrastructure help ordinary people cope with an accelerating retirement age?

5th December 2013

The increase in the state pension age has been inevitable for some time and indeed the process had already begun under the previous Government writes John Lappin.

But the announcement today represents a dramatic acceleration in the process. So far there have been very few complaints or much public anger. We may be diverging from our European partners in several ways. But one that completely baffles Europe’s politicians is the ease with which it has been possible to make these decisions about raising the retirement age in the United Kingdom.

Such changes in many European countries, except under extreme economic duress, would provoke riots.

One good thing about this change is that it at least allows people some time to plan ahead. Some previous changes to the retirement age for women have left shockingly little time for them to adjust and plan financially.

However the Government needs to be very careful – along with its benefit reforms – on the issue of whether significantly older people can really continue to work.

To put it another way, life expectancy may be increasing, but there is a very big risk that the number of years people can work for and the age they can work up to, may not increase so quickly. That throws up a host of challenges for individuals financially and for society as a whole.

Another issue is one of fairness across what we must loosely call the income groups raised by MPs just this week in Parliament. They have started to suggest that people who have had a hard life, or have worked in manual industries, may not see as much benefit from the state pension as their better off peers usually in more prosperous regions of the country. Bluntly, they won’t live as long and it is true.

Trying to take this into account in state provision – as postcode calculations with private annuities – would be very difficult, but it is still a significant factor in the debate. Perhaps the political consensus about the need to raise the age will start to break apart.

It will also be interesting to hear what Alex Salmond, already promising a state pension upgrade in an independent Scotland, has to say.

For the UK as a whole, at Mindful Money, we fear the pension, savings, investment and financial advice infrastructure is simply inadequate to equip people with the information, and access to decent investment plans to allow them to plan for and cope with this change.

The huge information gap is underlined by the fact a majority of people, against their own interest, take out an annuity with the pension firm they also saved with. They effectively lock in a pay cut for the years they receive a pension. If we can’t fix that, then other challenges look even more daunting.

We are hugely under-saved and underinvested and the jury is still out on the workplace pension reforms. There has been a lot of fiddling with the details. There are also many reasons for employers to be concerned. Their pension plans may begin to become slightly more affordable, if they are defined benefit plans and people work and contribute longer and retire later.

But for most employers with DC schemes, they may see people not wanting to retire if they do not have a least a state pension and some workplace pension to rely on. Empoloyers can resort to capability assessments and redundancies but it is a legal quagmire.

Finally the state pension age probably does have to increase to some degree. But if so, the UK really needs to raise its game in a host of other ways. We suspect the arguments have only begun.

1 thought on “Can our pensions, savings and advice infrastructure help ordinary people cope with an accelerating retirement age?”

  1. Noo 2 Economics says:

    Speaking as a person who worked in the building trade for a few years and then went into office work I believe it is right that manual workers should retire earlier than those of us in sedentary jobs, for the simple reason they are just not fit enough to undertake the tasks required of them at the speed required due to a human condition called… old age. Of course that would invite implementation problems as some people may turn up in manual jobs a couple of years before a manual worker’s retirement age having the previous 30 odd years in an office and a fair policy should be devised for such events.

    The big problem with pensions is that they are effectively a 20, 30 or 40 year contract requiring stability of terms but the Government continually fiddles with those terms, indeed, even the State retirement pension has had 22 changes made to it in the last 34 years.

    This becomes a very risky business to take out a 40 year contract which can be changed at any time on a politician’s whim. In contrast, ISA’s and their PEP predecessors have enjoyed stable terms and conditions, albeit there is no tax relief on your contributions, but then again, there is no tax on your profits(if any).

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