Time to stop relying on the state pension – reaction to pensions review
PUBLISHED: 06:56 24 March 2017 | UPDATED: 11:16 24 March 2017
Calls have been made for an increase to the pension age to be brought forward - meaning workers may have to put their retirement back another year or two... or five.
A review has recommended raising the age when you can start drawing your pension to 68 by 2039 – seven years earlier than planned – and scrapping the triple lock guarantee during the next parliament.
The changes have been mooted because people are living longer – but charities have warned that changes must not come at the expense of those already drawing their pensions.
Meanwhile, the younger generation, who face working until 70, will be paying for current pensioners while saving for their own retirement – amid rising inflation and economic uncertainty.
The author of the report, former CBI director general John Cridland, said the changes would provide greater “intergenerational fairness”.
The report will help inform the government’s review of the state pension age, due in May.
The new ages have been calculated to give people around one-third of their life in retirement - but as people’s life expectancy increasing, so have retirement ages.
The triple lock ensures state pensions increase in line with the higher of inflation, earnings or 2.5%.
Mr Cridland’s report said the state pension is a “pay as you go” system – meaning today’s workers pay for today’s pensioners.
And with the proportion of pensioners in the population set to rise from 305 per 1,000 working-age people to 350, the working population will have to carry a bigger burden.
Richard Larner, Norwich branch manager for financial adviser Hargreave Hale, said it may be time to re-think protection for pensioners.
“The triple lock has benefited those of pension age during a difficult economic time. Those in work have seen their income rising slower,” he said.
“Looking across society as a whole the triple lock does seem to be a bit too generous.”
Dissatisfaction at the triple lock – a move to protect pensioners and woo a politically powerful demographic – has been growing, as younger generations face up to the savings challenges, and lengthy careers, ahead of them.
Last month a report from the Resolution Foundation showed pensioners’ income outstripping those of their working age equivalents, thanks to still being in work, owning their home and receiving generous pension pots.
After housing costs, typical pensioner households are now £20 a week better off than typical working age ones, according to the Time Goes By report, a £90 turnaround from 2001.
But Age UK Norwich warned that while pensioners have benefited, there are still many, including in the city, who are struggling to get by.
Chief executive Susan Ringwood said: “If it is during the next parliament then that is not very long for people to take a look at their affairs.
“We still get people living on very modest fixed incomes.
“Young people are also disadvantaged at the moment but I don’t think it is fair to play the two groups off against each other.
“We need something which works for everyone.”
Mr Cridland’s report shows government spends nearly £100bn a year on the state pension and pensioner benefits, but by 2036-37 that figure will need to have risen by a further 1% of GDP.
If that rise was imposed today, it would mean a tax hike of £725 a year for every household in the UK – a scenario that has prompted calls for a rethink of the state pension’s role.
The government’s auto-enrolment scheme – forcing employers to contribute to a private employee pension – is designed to get people in the habit of saving for their own retirement independently.
“In the future relying on the state pension is something which you might not be able to do any more,” said Mr Larner.
“Having a private pension is something which could get a lot more important. The difficulty will be for the people who don’t have spare cash to make private pension provisions.”
But it’s not all bad, said Mrs Ringwood. “The good news is people are living longer, staying healthier for longer and don’t want to retire.
“Feeling you can still make a contribution is good for health and wellbeing - but it’s not a case of one size fits all.”
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