Ageing population points to private pension pots

IS the burgeoning number of elderly people threatening to bankrupt the country?

Definitely an over-statement, but it’s not without an element of truth. The age at which individuals can claim their state pension is to rise to 66 by 2020, to 67 between 2026 and 2028, and 68 between 2044 and 2046.

But so concerned is think tank the Centre for Social Justice – chaired by former Work and Pensions Secretary Iain Duncan Smith – it proposes a hike to 70 by 2028 and 75 by 2035, maintaining “a sustainable state pension age must be introduced”.

Unsurprisingly this has provoked fierce political controversy.

Labour leader Jeremy Corbyn condemned “a policy that discriminates against working-class people – especially those in manual jobs”.

Labour MP David Lammy added: “The average life expectancy in this country is 81. In Glasgow, it’s 71 for men. State pension policy won’t affect people like IDS. But it will affect those who will now be working until the day they die.”

Former pensions minister Ros Altmann has warned the idea was shocking and “must not be allowed to happen”.

However, the CSJ defended its position, stating: “While this might seem contrary to a long-standing compassionate attitude to an older generation that have paid their way in the world and deserve to be looked after, we do not believe it should be.

“Working longer has the potential to improve health and wellbeing, increase retirement savings and ensure the full functioning of public services for all.”

And it received some backing for its stance. Nathan Long, senior analyst at Hargreaves Lansdown, told FTadviser: “A delay in receiving the bedrock of your retirement income isn’t popular but is necessary against a backdrop of people living longer.

“This will only accelerate more flexible working among older workers, making the flexibility of the pension freedoms even more valuable.”

But, perhaps with one eye on a possible General Election round the corner, Pensions Secretary Amber Rudd was quick to distance the Government from the proposals. “The State Pension age is 68 which is fair, sustainable and affordable for all generations.”

The report, Ageing Confidently – Supporting an ageing workforce, highlights how the state pension is the largest single item of UK welfare spending, accounting for 42 per cent of the total in 2018.

The state pension bill has increased from £17 billion in 1985/86 to £92 billion in 2016/17, up from 3.9 to 4.6 per cent of GDP, though still way lower than the OECD average of 8.2 per cent. Under the current triple-lock system, the pension increases each year in line with whichever is the highest :

CPI inflation, average earnings growth or 2.5 per cent.

Last year, the Office for Budget Responsibility predicted spending on the state pension would jump by one per cent of GDP, to 5.6 per cent by 2023, an extra £20 billion, the think tank asserts.

Adding to this is the nature of demographic change since an increase in life expectancy and a decrease in the fertility rate means that older people make up a growing proportion of the population and could be in the majority by 2035.

The CSJ urges: “Removing barriers for older people to remain in work has the potential to contribute greatly to the health of individuals and the affordability of public services.”

It calls for significant improvements in help for older workers. This includes improved healthcare support, increased access to flexible working, better opportunities for training, an employer-led Mid-Life MOT and the implementation of an ‘Age Confident’ scheme.

All of which points to an increasing need for individuals to accumulate their own private pension provision.

Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners, based in Solihull. Email: tlaw@eastcotewealth.co.uk

The views expressed in this article should not be construed as financial advice