How do we face up to the prospect of a retirement age receding into the future and diminishing returns on the money we put away to keep us comfortable in our old age? By Tony Watts OBE

Has the time come to question whether the concept of “retirement” is no longer one we can take for granted in this country?

I ask this in the light of several big demographic shifts, not least increasing longevity, allied to a looming skills shortage as the boomer “bulge” retires. By 2022, 14.5m jobs will need to be filled… with only 7.0 million younger workers coming through to fill those posts.

Growing numbers of older people are, indeed, remaining in the workforce – either because they want to keep active or – faced with diminishing returns on their private pension or a paltry state pension to rely on – can’t afford to retire: over one million of us aged 65 and over still work.

The Government, understandably, is enthusiastic about keeping people working for as long as possible: if half of the one million older workers currently inactive but keen to work returned to employment it could boost GDP by up to £88 billion a year. Persuading people to keep on paying NI contributions rather than drawing a pension is also in their interests… helping to reduce the £171 billion annual state pension bill.

Abandoning the Universal State Pension

No surprise then that former CBI boss John Cridland has been tasked with questioning whether we need to relook at the State Pension… with no options left unexplored – including abandoning the concept of a Universal State Pension complete with “triple lock” uplifts every year in return for a personalised version. His interim report is just out, with a full report expected next March.

Another context for the report is the question now being asked: is our pension and benefit system fair to young people? Many in the younger generation feel, with some justification, that their post-retirement world will be far harsher than today’s. Not only that, but every current state pension is paid for out of the earnings of today’s workforce.

Yet despite the claims that the baby boomer “never had it so good” generation is “robbing the young of their futures”, it’s worth remembering a few hard facts.

Firstly, our generation paid for our parents’ retirement. Secondly, our State Pension remains one of the least generous in the developed world, while our retirement age is the highest.

Yes, many in or approaching retirement have benefited from a generous company or public pension, but the average pension “pot” is less than £90,000 – and may have to last 30 years. Agreed, house inflation has left many sitting on a tidy asset, but paying for future care will come out of that, while huge numbers find themselves asset rich and cash poor – unable to afford the upkeep of their own home.

Will future state pensions be affordable?

The argument taxing this Government (and others globally) is that the current system may not be affordable long term, even with the state pension age rising to 66 by 2020, 67 by 2028 and to be reviewed every five years in line with life expectancy.

While there is no question that many of us are able, willing and indeed compelled to keep working for longer than we had anticipated, for others there is no option but to leave the workplace. Health or mobility issues, caring responsibilities, not having the skills required… for many, a penurious retirement awaits unless those needs are recognised and money found.

The DWP, meanwhile, is pushing employers to retain older workers’ skills and talents with a more flexible approach. Key to making this possible is recognising that not everyone is able, or willing, to work the same hours or perform the same role. Expect part-time working or job sharing to become increasingly available, along with a greater recognition of caring responsibilities to fit round.

An added bonus of working after State Retirement Age is that you no longer have to make National Insurance contributions – although your employer will.

Equally, the concept of a “mid-life review” is being promoted: employers talking to employees well before retirement about their future needs and aspirations… and shaping a work/life balance that suits both parties.

Another promising concept is the “multi-generational team” – one where talents are pooled and older people spend part of their time coaching younger workers with the life and work skills they may be short of. Younger people, meanwhile, can bring older colleagues up to speed on new technologies.

SHAPE YOUR OWN FUTURE

Essential to everyone planning their future will be a detailed knowledge of just how much they need to fund their retirement – and for how long they will need to work. The answer is now available through a unique online retirement planning dashboard which allows you to feed in your income, outgoings and savings and map out a host of different future scenarios. You can try out the basic version of www.retireasy.co.uk for free. 

The new Premium Service  takes the technology considerably further with Live Share and Fund updates (provided by Morningstar), the ability to model multiple scenarios and lifetime mortgage, printable narrative reports as well as a Life Assurance Premium Checker.

Go to www.Retireeasy.co.uk to find out more.