The state pension will rise by £2.95 a week from next April, leaving pensioners £800 a year better off from government measures since 2010, Osborne says. Pensioners will be offered the opportunity to make voluntary national insurance contributions to boost their retirement income. The new principle that people should spend one third of their adult lives in retirement implies an increase in the state pension age to 68 in the mid-2030s and 69 in the late 2040s.
Derek Miles, CEO of Aspira is straight to the point: “Whether the retirement age is 68, 78 or 108, the fact remains that many people aren’t saving enough or sensibly enough to retire comfortably at any age. We urgently need a revolution in financial education and levels of saving to ensure people are able to retire at all. And this revolution is going to have to start at a grassroots, employee/employer level.”
TUC General Secretary Frances O’Grady was not enamoured with the news: “There has been no new evidence to show that people are living any longer since the last time the Chancellor increased the state pension age, yet today’s young workers are being told they must work until they drop.
“There are already massive inequalities in the state pension, with a woman in Corby expected to receive £67,000 less than someone in East Dorset due to widening gap in life expectancy. This pension divide will get worse as a result of today’s announcement.
“However many decades they work hard and contribute, tomorrow’s 69 year-olds will find themselves being sent for the future version of ATOS assessments if they can no longer work. Barely half of all men are able to work beyond the current state pension age. Raising it further will simply prolong an agonising limbo between their last job and their state pension.
“This has nothing to do with dealing with unexpected extra pension costs but is part of a long-term attack on the welfare state and the dismantling of our national insurance system.”
Recent TUC research – available at www.tuc.org.uk/statepensiondivide – found a £67,000 state pension divide due to a widening gap in life expectancies and a rising state pension age. This divide will increase as a result of today’s announcement, says the TUC.
Further TUC research published last year found that disability and poor health are preventing nearly half a million people approaching retirement from working, a figure that will increase as the state pension age rises.
Patrick Haines, regional head of advice at Close Brothers Asset Management, is also critical of the measures: “Deferment of the State Pension Age is now common knowledge to the hard-pressed retirement savers, but bringing forward the increase in the state retirement age to 68, and then 69, will be galling to many. Many savers felt they were able to plan for a later retirement age when these proposals were announced in previous Budgets. However, today’s announcement will be viewed by many as a further erosion of what is rightfully theirs, and will heighten concern that future governments may bring forward a later retirement age still further as the demographics of an ageing population impacts on today’s savers. Current retirement savers will be forced to eke out surplus income to re-direct to pensions simply to maintain their planned retirement age. Younger savers may well wonder how they can be expected to avoid working potentially into their 70s. This will not be the end of this particular long-running story – the ‘B&Q retiree’ is very much alive and kicking.
“These proposals will look to many as ‘playing around the edges’ when what is really needed is a wholesale re-think on who should be entitled to a State Pension at a realistic age and what to do for those who having been paying National Insurance contributions (NICs) for years.”
However, Darren Philp, B&CE is more upbeat: “As we are set to live longer, it is inevitable that the state pension age will continue rising. It’s good that the Government has announced this now to give people who are in their forties time to plan for what will probably be a longer retirement.
“The announcement also underlines the importance of people saving into a workplace pension. The introduction of automatic-enrolment has started compelling people to save but we now need to make sure they are saving enough. We also need to ensure people have flexibility in how they can take their pension so they can do what’s right for them as they approach retirement”.
Mark Wood, CEO, JLT Employee Benefits, is also positive: “Life expectancy is currently increasing by roughly two years every decade or about five and a quarter hours a day! The Government has chosen a moderate course. A much greater change could have been justified. Today’s seventy year olds can, on average, look forward to twenty years of retirement. Omitting those over the age of 50 from the changes means that those affected have sufficient time to plan ahead.
Western Countries are benefiting hugely from advancements in pharmaceuticals, public smoking bans, better diets and healthier lifestyles – and those railing against the changes being announced today must remember that this is unequivocally positive. It stands to reason that our pension provision and the length of our working lives must adapt accordingly with medical and health developments.”
Paul Riddell, Director, AXA Wealth, believes everybody should take responsibility for their own retirement: “Nobody will be surprised to hear about the changes announced in the Autumn Statement. We are all expecting to work later and later in life. What isn’t clear is how the government and pensions and savings industry is going to work closer to encourage more people to save appropriately for the future.
“AXA’s latest Big Money Index found that 42 per cent of people aged 45 to 54 are not currently saving for their retirement at all and 36 per cent said that they will be postponing their retirement and relying on continued employment to support themselves in the future.
“For many years there have been calls for better financial education, both in schools and in the workplace. Our research shows that the many initiatives that have been launched don’t appear to have made much ground. We all need to think longer and harder about how we will fund our retirement and we all need to accept that it will not come as early as we might like. There is no doubt that without the right planning, that starts at an early age, people will need to accept that they will be working well into their 70s.
“These changes will have wide-ranging implications for the economy, for employers and employees both young and old, and for our wider society. We need to assess the full impact of these changes, which won’t truly be known for many years, and we need to develop a coherent and joined-up strategy with the government at national and local level, to combat the real issue of apathy and ensure that everyone understands the implications of not saving for their future.
“The term ‘state pension’ is increasingly becoming out-dated. It sends out a message that people may be able to rely on it as their sole pension income. This just isn’t the case. A more realistic message that we need to help people understand is that the Government will provide a ‘later life income supplement’ to your own personal provision. The state benefit may support your ‘life’ but it’s highly unlikely to support any kind of ‘lifestyle’.
“We need a radical overhaul in the way we support and communicate the importance of saving for the long term by focusing on transparency, value for money and most of all plain English.”
Simon Fenton, employment specialist and partner at leading law firm Thomas Eggar LLP has the last word: “The increase in the state pension age will inevitably have an impact on forced retirements. The right to enforce retirement on an aging employee, usually at 65, went years ago. Now, if an employer wants an employee to leave, and the employee wants to stay, they must be ‘managed out’, usually on the grounds of diminishing performance. Workers over the age of 65 are still relatively rare. The incentive has always been to remain in employment until the state retirement age. Workers are likely to want to stay until they are older and public policy will be, tacitly or otherwise, to encourage them to do so.
“With an increasingly aged workforce, enlightened employers are likely to focus on keeping them happy and healthy. Out with the crèche and childcare vouchers and in with eye test vouchers, health screenings and more frequent rest breaks. The main legal implication will be the law of unintended consequences; this could spin out in any number of ways and only time will tell whether an older workforce add value by maintaining years of valuable experience or a block on promotion for younger workers.”
If people who are on minimum wage have to decide on (a) do I heat or (b) do I eat, it would be ridicoulous to think that they would give any thought to (C) do i save for my retirement ?