The probability of
people in the UK living to 100 is increasing sharply. While this is
good news in itself it is bringing into sharp focus the financial
challenge this poses to individuals and the state. Pension expert
Ros Altman argues that the solution lies in a radical change to the
traditional view of retirement.
Go deeper with GlobalData
Putting a new
slant on life expectancy in the UK, the Department for Work and
Pensions (DWP) has released a study showing 20-year-olds are three
times more likely to reach 100 than people of their grandparent’s
age (80-year-olds), and roughly twice as likely to reach 100 than
people of their parent’s generation (50-year-olds).
Delving further into life
expectancy probabilities, the DWP also emphasised that a baby born
this year is almost eight times more likely to reach 100 than one
born in 1931. A baby girl born this year has a one in three chance
of living to 100 and a baby boy has a one in four
chance.
In 2066, there will be at
least half am people aged 100 or over, noted the DWP. At present,
the oldest person in the world is Besse Cooper aged 114 from the US
state of Georgia, according to the DWP.
“The dramatic speed at which
life expectancy is changing means that we need to radically rethink
our perceptions about our later lives,” said Steve Webb, the UK’s
minister of state for pensions.
“We simply can’t look to our
grandparents’ experience of retirement as a model for our own. We
will live longer and we will have to save more.”
Easier said than
done
Ros Altman, a retirement
policy expert and director-general of financial services company
Saga Group, said: “With high debt levels and rising living costs,
just expecting people to save enough for a traditional pension and
retirement will not work.
“Once student debts are
repaid, workers who retire in their 60s might have been able to
save for about 30 years but that will not fund a decent income for
another 30 years later on.”
Altman continued that
the traditional concept of pension income is money that older
people receive when they stop work.
“In other words, pensions pay
people not to work,” she stressed. “Where will this money come
from?
“If people stop work
altogether, that money must come either from the state – in other
words from people who are still working and pay taxes or national
insurance – or from individuals’ own resources, their own pensions,
savings and other assets.
“As more and more older
people live longer, working taxpayers will struggle to keep paying
those who have stopped.”
Threat to
sustainability
The financial challenge posed
to state expenditure by an ageing population received special
attention in the first long-term fiscal sustainability report
produced by the government’s Office for Budget Responsibility
(OBR). The OBR’s report published in July this year takes a view
over the next 50 years.
In the report, the OBR
stressed that its projections suggest that the absence of any
change, public finances are likely to come under pressure over the
longer term, primarily as a result of an ageing
population.
The report states: “Under our
definition of unchanged policy, the government would end up having
to spend more as a share of national income on age-related items
such as pensions and health care.
“But the same demographic
trends would leave government revenues roughly stable as a share of
national income.
“In the absence of offsetting
tax increases or spending cuts this would eventually put public
sector net debt on an unsustainable upward trajectory. It is likely
that such a path would lead to lower long-term economic growth and
higher interest rates, exacerbating the fiscal problem.”
Altman’s
solution
“It does not need to be like
this,” Altman emphasised.
“There is a whole new phase
of life waiting for future generations [and for today’s workers
too].
“Instead of just the three
phases we have now – studying, working, retiring – we can add a
fourth phase. Studying, working full-time, working reduced time,
retiring.
“People are not old at 60 or
65 any more, but they may not need to work full time. They can work
some of the time and give themselves and everyone else a better
life.”
She continued: “Working
reduced hours is a phase of life that can bring tremendous
benefits.
“I call this bonus years
where people can be working perhaps two or three days a week,
having four or five days a week free, adjusting working hours to
their capabilities, preferences and needs as they get
older.
“This would mean more money
coming into the economy and more money for older generations to
spend to give them better lifestyles.”
If the challenges of rising
life expectancy and inadequate preparedness for retirement are to
be solved a new, radical approach is required, Altman
stressed.
An “excellent first step” towards this has already been
taken in the form of the abolition of the default retirement age,
she concluded.
