How far will retirement savings need to go?
The U.K. government is considering raising the retirement age when you access your state pension pot. The reason? To save the Treasury billions.
The state pension age is already scheduled to rise, increasing from 66 to 67 in 2028 and then from 67 to 68 between 2044 and 2046. The plan under current consideration would implement these changes in 2034.
A pensions report conducted in 2017 recommended that the state pension age be brought forward to 2037 and 2039, but a final decision was deferred to this year. The Pensions Act 2014 requires the government to regularly review the state pension age, and it must be published this year by May 7, 2023, so they will need to decide by then.
Plan based on old data
Raising the retirement the retirement age was recommended in 2017, based on the data at that time. The average UK life expectancy was 79.4 years for males and 83.1 years for females. Although life expectancy improvements in the UK had been low since 2011 compared with previous decades, this was the highest life expectancy ever seen for both sexes.
Since 2017, the increase in UK life expectancy has slowed, and reversed. Some critics argue that the plans are unfair as life expectancies are currently falling rather than rising as previously expected. This means the average Briton would be living fewer years in retirement and drawing on their state pension for less time, potentially negating the need to raise the retirement age.
By 2019, life expectancy at birth in England had increased to 79.9 years for males and 83.6 years for females. However, the Covid-19 pandemic caused life expectancy in 2020 to fall by 1.3 years to 78.6 years for males and by 1 year to 82.6 years for females. The averages fell because the pandemic caused 128,000 excess deaths in England between March 2020 and December 2021 compared with the 2015–19 average, resulting in the largest fall in life expectancy in England since World War II.
So, the question arises: Should the – perhaps temporary – drop in average life expectancies be used to calculate the future retirement ages?
Not all later years are working years
In theory, raising the retirement age means many workers would keep working longer. But the reality isn’t that simple. Many older workers face health problems, or are working fewer hours in order to provide care to others.
The 2022 Great British Retirement Survey found that more than one in five (21%) of 56-to-65-year-olds cut their hours due to ill health. In addition, 13% of 56-to-65-year-olds reduced their working hours due to caring responsibilities – a responsibility that falls disproportionally on women. Caring for a loved one takes the energy and hours of a job but without any pay.
A second measurement, healthy life expectancy, has also increased over time, but not as much as life expectancy, resulting in more years spent in poor health.
Although a male in England could expect to live 79.4 years in 2018–20, his average healthy life expectancy was only 63.1 years, leaving him with 16.3 years in ‘not good’ health. Although females live an average of 3.7 years longer than males, most of that additional time is spent in poor health.
Another measure, disability-free life expectancy, is an estimate of the number of years lived without a self-reported, long-lasting physical or mental health condition that limits daily activities. Disability-free life expectancy is almost two decades shorter than life expectancy.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
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