All over the world, as populations age and the numbers of working age people “coming through the system” goes down, countries are looking to raise their state retirement age… many have staged increases already planned. So how does the UK rank in all of this, and when can you expect to enjoy the five-figure annual sum now afforded to those with a full State Pension? By Tony Watts OBE.
Read some of our national newspapers recently and you could be forgiven for thinking that the State Pension is running out of road, and that the age at which you can draw it will need to be raised significantly over the next couple of decades – especially if maintaining the Triple Lock is baked into the calculations going forward.
This matters. For a large swathe of people, the State Pension is either their sole income (20% of men and 33% of women) and for many more it is a key component of their income.
Its importance will continue for some time to come: according to 2023 research by SunLife, almost seven million people over 50 have no private pension, many because they are on lower incomes or self-employed.
The Pensions and Lifetime Savings Association (PLSA) suggest that to have a moderate standard of living in retirement, a couple needs an income of around £34,000 a year (£41,400 for those living inside London). Yet only about 39% of UK households are on track to achieve this. The average pension pot for someone 55 – 64 is around £35,000, which is not going to take them very far.
Behind the concerns for the State Pension’s future is the fact that it is, technically, “unfunded”, as today’s workers are paying for today’s pensioners: there is no some multi-billion investment fund backing it up. And with the “bulge” of people born in the couple of decades after the War now either in retirement or heading towards it, along with birth rates hitting new lows, a smaller and smaller cohort will have to support them in the decades ahead.
Around the world…
Conversations are going on in countries all over the world about raising the age at which their citizens can draw on their state funded pension. The French, famously and firmly, recently said “Non” to raising it from 62 to 64 by 2030, while Swiss nationals have just voted in a nationwide referendum in favour of increasing their state pension by an extra month every year… but declining to raise the retirement age from 65 to 66.
In February, there was more speculation that the British retirement age might have to rise to 71 for middle-aged workers across the UK. That would represent quite a hike. It’s now set at 66, rising to 67 between May 2026 and March 2028; and from 2044, it is expected to go to 68.
The prospect of working into their seventies will be daunting for many, not least those who are in manually demanding roles or suffering poor health, and it would certainly make the UK an outlier internationally.
In 2019 (the latest period for which relevant figures are available) the average retirement age within the 38 member countries that make up the Organisation for Economic Cooperation and Development (OECD) was 64, while 67 applies in Greece, Denmark, Iceland, Israel, and Italy, as well as for anyone born in 1960 or later in the US.
Around the world, you have to look at countries like Sri Lanka (55), Indonesia, Kyrgyzstan Nepal (58) and Bangladesh (59) to see retirement ages of less than 60… but life expectancy is lower in these countries.
Making sure you’re on track…
The UK’s State Pension, despite what is often said about it, is not hugely generous and actually below the benchmark regarded as the poverty threshold. Fortunately (for many, if not all) the UK is also unusual in having relatively more people enjoying private pensions, albeit the “golden era” of defined benefit and final salary schemes is coming to an end.
It’s also noteworthy that individuals can typically draw down on their private pension from 55. On top of that, of course, the state retirement age is nominal if an individual decides (or is forced) to carry on working past it. The end of the default retirement age has made that much easier, although not everyone has the good health to keep doing that.
The way forward for many people will be phasing their retirement: using their private and/or State Pension to top up their income while they keep on working few hours or take on less demanding jobs through their 60s, 70s or even beyond.
If this is part of your future plan, finding out how “winding down” in your later years will affect your finances couldn’t be easier using your RetireEasy LifePlan. You can test out as many scenarios as you wish using the Premium plan, giving you an instant snapshot of how much you can comfortably afford to spend each year if you carry on working part time.
It could also help you decide whether to defer taking your State or private pensions in order to let them continue growing, or whether you can afford to take out a lump sum. If your RetireEasy LifePlan has lapsed, getting it back on track will cost you just a few pounds a month – click here to find out more.
