Retirement is a familiar part of our social universe. Historically, however, retirement was anything but common. Looking at more recent history, we can see this. For example, the UK’s Old Age Pension was only introduced on 1 January 1909, to around 500,000 people over the age of 70. By contrast, one in five people, or around 13 million, are now claiming the State pension (and aren’t having to wait until age 70 to do so!)
Somewhat ominously, the number of people in the UK of State Pension Age or older as a percentage of the working age population is projected to increase. Back in 1901, there were 10 pensioners for every 100 people working. This has now increased to 28 pensioners and, owing to the increase in life expectancy and lower birth rates, is expected to continue to increase, to around 37 pensioners by 2040.
As a result,
the Government is expected to spend an ever-increasing amount of the country’s
GDP on pensions and related benefits. Whether this is sustainable has yet
to be seen.
retirement income can mean different things to different people. Will it
provide an acceptable standard of living? Does it have an inbuilt level of
inflation protection? Is it guaranteed to pay out until death? Is it
flexible enough to change as needs change or to meet spikes in expenditure?
people, and different groups of people, will be affected differently. Some,
like Jeroen van der Veer, former chief executive of Royal Dutch Shell, are
unlikely to have to worry. He is sitting on one of the UK’s biggest pensions,
of some £1.3 million each year.
million Baby Boomers, now aged between 55 and 74, are likely to reach
retirement with relatively high levels of Defined Benefit (“DB”) provision
compared to the younger generations and have higher State Pension
entitlement. They are also more likely to have other sources of income and
million Generation Xers, now aged between 40 and 54, will reach retirement with
lower levels of DB entitlement than the Baby Boomers and more Defined
Contribution (“DC”) savings. They will also receive less income proportionally
from State pensions (owing to the effect of working patterns on their State
pension entitlements), are more likely to reach retirement in rented
accommodation, more likely to need to provide care, and less likely to have
other savings to draw on.
economic climates have put upward pressure on the cost of living (predominantly
accommodation), and downward pressure on inflation adjusted wage growth,
meaning that younger groups are earning less, and housing is more
expensive. In addition, the 17+ million Millennials, now aged between 20
and 39, are the least likely to have a DB entitlement (but will have greater DC
savings than the Generation Xers as a result of automatic enrolment). They
are also most likely to work casually or be self-employed (with the greatest
impact on their State pension entitlements).
While many people
view the Government’s key role as providing a safety net to those most in need
(including, traditionally, the elderly), there is a clear move towards passing
responsibility back to the individual, as witnessed by automatic enrolment.
This is, in part, a response to the financial pressures the Government is
facing over the coming decades.
As a general
rule, there are certain things individuals can look to do to help make
retirement more comfortable:
If eligible, join the company’s pension scheme.
Members benefit from employer contributions as well as the Government’s tax relief to boost pension savings.
While retirement might seem like a lifetime away, it will benefit in the long run to save now and spend later. For younger people, the money saved now will grow through investments. For older people, there is still a benefit from tax-relief on personal contributions.
Saving a little extra can make a big difference.
The cost of living can make it hard to find money to save. Whether it’s a pay rise, a bonus, or money that can be freed up by spending less somewhere else, it’s always worth thinking about paying a little more into a pension.
Work longer, giving your pension time to build.
Government statistics suggest more than a million people are working beyond State Pension Age. Some because they enjoy it. Others out of necessity. Either way, it means more time for money to grow whilst not depleting retirement savings.