Born After 1961? Be Prepared to Work for Longer

We are all living longer - and becoming a burden on the state - finds John Cridland's Independent Review of the State Pension Age

Emma Wall 5 April, 2017 | 3:36PM
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This week marks the end of one tax year, and the beginning of the new 2017/18 tax year. For investment ideas, back to basics education and advice from the experts read Morningstar’s Guide to Planning for Retirement.

A baby girl born today can expect to live to 94 years old, a 2017 baby boy’s life expectancy is 91 years. Based on today’s pension system, this means that as adult they could easily expect to has a retirement that lasts as long as their working life. It makes sense to slide the retirement age higher in line with life expectancy – but the reality of moving the State Pension age is more difficult.

Under current legislation, from December 2018 the state pension age for men and women will increase to 66. It will then rise to 67 between 2026 and 2028 and to 68 between 2044 and 2046. This means that a number of individuals literally banking on getting the new flat rate State Pension of £155 a week next April will have to wait another 12 months.

Critics have said that this will have a big financial impact for those workers who have already retired but do not have sufficient savings to fund a year without state support.

John Cridland last month published an Independent Review of the State Pension Age. He found that link between the rise in the State Pension age and longevity was fair, but pressed that it was the Government’s responsibility to properly inform individuals of any changes which affected them. Cridland recommended that people need at least ten years notice of change and change itself should be limited to once a decade.

He concluded that State Pension age should rise to age 68 over a two-year period starting in 2037 and ending in 2039, after that State Pension age should not increase more than one year in any ten year period. An increase to 69 would therefore be due in 2047, and to 70 in 2057, assuming that there are no exceptional changes to the data.

Life expectancy at 65 for men and women by geographical region

“Life expectancy at 60 is over 20 years on average, of which half is likely to be spent in good health. Already people are retiring at different ages, both before and after the State Pension age, either because they need to or they want to,” Cridland wrote. “The old cliff edge of age 60 and 65 has been washed away. The world of the Third Age is now a very different one, in which those lucky enough to get the State Pension will on average spend almost a third of their adult life in retirement, a proportion never before reached.”

Cridland recognised the challenge of ensuring fairness between each generation, but said this had to be balanced with the rising cost to the public purse of supporting an aging population.

Andrew Humphries, at St. James's Place Wealth Management said that attempting to forecast pension policy changes was a “mug’s game” but the direction of travel was “increasingly apparent”.

“Individuals who want to be in control of their own retirement need to save harder and for longer. That starts by making the best use of ISA and pension allowances in the remainder of this tax year and beyond, while they are still available,” he advised.

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Emma Wall  is former Senior International Editor for Morningstar

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