The retirement age may have to rise faster than planned.

The retirement age for a full pension was never going to remain static as we live longer and the percentage of the population over retirement age – what ever that is – is increasing pretty much everywhere around the world. I’ve written about this before and actually the proposals suggested below fall short of some proposed in the past that suggested a retirement age of 75. Currently the UK and USA are similar with retirees getting a full pension at approximately 68. 

Pensions are not new but the expectation of actually getting one for a prolonged period has increased markedly.

 

Pension History.

Widows’ funds were among the first pension type arrangement to appear, for example Duke Ernest the Pious of Gotha in Germany, founded a widows’ fund for clergy in 1645 and another for teachers in 1662. ‘Various schemes of provision for ministers’ widows were then established throughout Europe at about the start of the eighteenth century, some based on a single premium others based on yearly premiums to be distributed as benefits in the same year.’

In Germany as part of Otto von Bismarck’s social legislation, the Old Age and Disability Insurance Bill in 1889. The Old Age Pension program, financed by a tax on workers, was originally designed to provide a pension annuity for workers who reached the age of 70 years, though this was lowered to 65 years in 1916. At this time an adult entering into insurance under the scheme would on average live to 70 years of age, a figure used in the actuarial assumptions included in the legislation.

Have a look at a few of my old blogs on the subject.

Pension – Part 1

Pension – Part 2

Raising the retirement age to 75 won’t fix the UK’s pension problem.

When will YOU retire? The average is long before state pension age.

If you want to have a look at what the future for our children and grandchildren may look like, I recommend this vision of the future which explains why the state can’t afford to pay out pensions at the current age if we are to be living to 100! It also discusses how the working life might look in the future with most of the population having several careers which will need retraining for or a situation where AI and robots can do most things except those human caring jobs and the inventive and imaginative roles that AI might never catch up on. How does all this get paid for and will those who do earn be happy to support the unemployed or under employed masses not living a life of leisure in all probability. This isn’t science fiction but economic fiction and probably wont come to pass exactly as predicted in the same way we don’t all get around in flying cars and vacation on Mars as might have been predicted 50 years ago!! 

This from the Times of London 1st December 2022.

The retirement age may have to rise faster than planned because of “pretty hairy” problems facing the public finances, a cabinet minister has suggested.

Mel Stride, the work and pensions secretary, said that the state pension age would have to adapt to life expectancy and to “cost”.

He told MPs on the work and pensions select committee: “There are various moving parts in assessing where we should go with the uprating of the state pension age. One of them is life expectancy and, more precisely, what proportion of your life should we expect people to have in retirement as opposed to not in retirement.

“Another is the cost, and if you look at the consequences of us living longer and you look at that, for example, as expressed in the financial stability report the OBR [Office for Budget Responsibility] produces every year where it casts out 50 years and says, ‘What are the public finances likely to look like given the demographic changes’ — the cost of pensions being an element within that — it all gets pretty hairy. So there is certainly this other element of ‘What’s the cost going to be?’ ”

Stride added that another area to be considered was “intergenerational fairness — when you look at the split between how long somebody works to support those that are not working”.

The state pension age of 66 is set to rise to 67 by 2028 and 68 by 2039. However, a review of the pension age that is due to be published next year is thought likely to recommend bringing forward the increase to 68 to 2033.

Doing this could save the government significant sums of money. According to an analysis by LCP, a pensions consultancy, increasing the pension age to 68 one year earlier than planned would save the exchequer almost £10 billion, which would be comprised of money saved from state pension payments and of taxes on extra earnings.

A review in 2017 of the state pension age, led by John Cridland, a former director of the CBI, established that people should expect to spend an average of up to one third of their adult life in retirement.

Asked whether the government was “seriously thinking” of reducing that proportion, Stride said that Cridland’s review was “a factor to consider but I can’t really be drawn on what my thoughts are at this stage” on Cridland’s figures. He added: “But clearly, that metric is a very important measure.”

Under questioning from the Labour MP Debbie Abrahams, who said that life expectancy was “flatlining” and in some parts of the country “going backwards”, Stride acknowledged: “The rate at which it’s increasing has flattened, yes.”

Separately, Stride told the committee that he was likely to set targets for getting “economically inactive” adults back into the workforce.

Telling MPs that he was “a believer generally that what gets measured tends to be what gets done”, Stride said that those who had left the workforce were not only “asset-rich” people over the age of 50 but also included the “long-term sick who may have all sorts of serious barriers to getting back to work”.

He said: “We have to work with the health department. We have to work with employers. We have to look at occupational health and very different approaches.”

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