Later life is getting harder
Official statistics show how fast later life is changing. More work and less certainty of income are two key trends, says Sam Meadows
Chancellor Philip Hammond has hinted that he may use his Nov 22 Budget to redress the balance between the elderly and young – with the clear message being that the former pay more so the latter can benefit. But the latest official data suggests that a seismic change, in which the elderly are working longer while facing much greater financial insecurity, is already well under way.
More and more older people are working longer than ever before as they attempt to plug the financial gap between an inadequate pension and a lengthening retirement. Meeting the costs of care – and attempting to assist their grandchildren – adds to the pressures.
Statistics released by the Department for Work and Pensions show, for the first time, that Britain’s average “exit age” from employment has surpassed 65 for men, with women fast closing in. More than one in 10 men are now working beyond the age of 70, while 8pc of women are also working past this threshold.
This increase has gone hand-inhand with the rising state pension age, which will be 68 for those born after 1977.
Correspondingly, numbers of those who can afford “early retirement” are also dwindling. In the Eighties it was common for many in their 50s to retire, often on the back of well-financed pension schemes that had been buoyed by healthy stock market returns. In 1984 only 56pc of over-50s were still working. That number has shot up in the past three decades to 71pc today.
But lifespans continue to get longer. Babies born since the turn of the millennium are predicted to have a greater than 50pc chance of living to 105. In The 100 Year Life, published last year by London Business School professors Andrew Scott and Lynda Gratton, it was calculated that a future centenarian who saves 10pc of their salary throughout their working life won’t be able to retire on half their income until they are well into their 80s.
The pair predict this will lead to people constantly reinventing their working lives and stretching their careers into their 70s and beyond.
Scott and Gratton conclude that human beings’ newfound 100-year lifespan could be a gift, offering us the chance to change careers and learn new skills well into old age (see box, right). But, if we fail to prepare, they warn, it could trigger a crisis in our finances.
The financial implications of a 40-year retirement
Telegraph Money analysis shows the scale of the financial task facing those
seeking to build a pension pot that can fund an income for decades.
At today’s rates, a 65-year-old with a pension pot of £100,000 (that’s approximately three times the average) would be able to swap it for a lifetime annual income of £5,224.
That figure derives from the current return on an annuity – an insurance policy that promises to pay an income in return for a cash sum.
The maximum state pension available is worth £8,297 a year and so if the pensioner wanted a pre-tax annual income of £20,000, they would face an immediate shortfall of more than £6,000.
Working plugs the gap – up to a point. Taking the worst-case assumption that the job pays the national living wage of £7.50 an hour, it would take almost 900 hours of work each year – or 17 hours a week
– to achieve the goal. Once the national living wage rises to £9 an hour, expected to be by 2020, this requirement will drop to 720 hours a year, or 14 hours a week.
For a person who expects to live past the age of 100, there will be a greater challenge. The calculations above assume someone will be able to do part-time work for every year of their retirement until they die. In real life this wouldn’t be practical. If they wanted to fully retire at 80 and expected to live to age 100, then in order to maintain an annual income of £20,000 this worker would have just 15 years of retirement to make up a shortfall of £130,000. Achieving this means about an extra 1,000 hours of part-time work a year between the ages of 65 and 80.
So, at £9 an hour, the retiree above would have to work 32 hours a week to sustain a £20,000 annual income until the age of 100.
The shortfall is only likely to get worse as general life expectancy gets longer. Annuity rates are heavily linked to life expectancy, so for younger, healthier lives they cost more (or pay out less).
Little data exists regarding the most popular jobs for older employees, but recruiters predictably say they include jobs most easily done part-time, such as consultants,
freelancers, driving instructors or carers. An ongoing inquiry by the Women and Equalities Committee, led by Conservative MP Maria Miller, elicited a depressing response from the public.
Evidence received by the committee before this summer’s snap election revealed a mix of fortunes for older jobseekers, with many complaining they found it increasingly difficult to get invited for interviews, let alone secure a job. One worker said any work he did find tended to be for limited hours and poorly paid.
There are success stories, however, mainly regarding older people who decide to start their own businesses.
One respondent to the inquiry described how she set up a vintage accessories pop-up shop aged 56 and expects to continue working until she is at least 66.