Take part in our new Family Business Survey and have your say! Click here
Pension. A word that never seems to be out of the media at the moment, with the government recently announcing plans to accelerate the equalisation of male and female State pension ages to 66 by 2020 and trade unions threatening all sorts of industrial action against the changes being forced upon their members.
Let’s look at the proposed changes to State pension.
A study by the Pensions Policy Institute last year concluded that the state retirement age would need to rise to 72 by 2030 to keep the cost to the UK government at the same level it was in 1981, with a rise to 68 by 2030 to keep the level at that seen in 2000.
The increased cost to the UK economy is being driven by the increased birth rate of the post-war years of 1946 and 1947. As the baby-boomers reach 60 and 65 the cost of providing state pensions has increased by £14 billion since 2005 and is expected to increase by another £4 billion next year. By 2030 it is predicted that there will be an additional 5.2 million people aged 65 or over. (Source: BBC website)
The previous Labour government realised that something needed to be done to reduce the financial burden on the UK economy and introduced legislation to equalise the state pension age at 65 for men and women. The Pensions Act 2007 legislated that the retirement age would rise to 66 for all between 2024 and 2026. The coalition government has recently announced plans to accelerate this change to the retirement age and introduce the 66 minimum by 2020.
One of the most interesting proposals I have seen recently is a suggestion to abolish a set retirement age and instead link the age of retirement to the number of years worked. Oxford Professor Sarah Harper is one of the authors of “Living Longer and Prospering?” - a report into the effects of increased life expectancy on pensions. She says that life expectancy is increasing, on average, by three years every decade and because of this changes do need to be made to our pension system.
"If you're a man in this country, you're unhealthy, you're on a low income and you're a manual worker, when you retire at 65 your life expectancy is probably only around 75-77," Professor Harper said. "If, however, you're healthy, you're on a high income, you're maybe managerial and professional, you could easily reach your late 80s - indeed there's an 11-year difference.” She adds; “If everyone had to work for 45 years before receiving a pension, a manual labourer with a lower life expectancy who had started work at 16 would probably still have 15 years of retirement, as would a professional who had entered the workforce later after further education. If you examine the life expectancy of those who stay in education until their mid-20s, they can probably afford to work another five years. If the government continued to raise the pension age an increasing number of people could end up being too ill to work before they could access it.”
Whatever the solution, it is clear that changes do need to be made and change is not always welcome.
If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletterSubscribe
All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.
Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.
Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW
Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW