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Work ‘til you drop…

The UK needs a means to plan for the fundamental changes affecting retirement and the prosperity of our society, says AJ Bell’s Mike Morrison

My first job in pensions was probably an accident – I wrote to an insurance company asking about jobs, turned up for the interview and the application form had ‘pensions’ hand written in the top corner with ‘fire and accident’ crossed out!

As I look back I think ‘what a slice of luck’.  Some people might think that pensions is a boring subject but over the years it has been wide ranging with both a micro side – retirement and tax planning issues for individuals – and a macro side – with pension policy interlinked with taxation, economics, demographics and social structures.

Recent figures from the ONS showing an analysis of the changing work and retirement patterns of those aged over 50 illustrated two strong messages:

– People are retiring later – the male average retirement age up 1.9 years since 1997 to 65.1 years and the female average retirement age up 2.8 years since 1997 to 63.6 years.

– People are working longer – employment rate for people aged 50-64 has risen substantially in recent decades, while the gap between the employment rate of older and younger workers has narrowed.

I think that both of these are trends that we would expect to see, but they provide useful confirmation of perceived wisdom.

Similar statistics emerged a few days a later from the DWP:

• Average age of retirement has increased for men and women over the past two decades – men from 63.2 to 65.1 and women 60.8 to 63.6.

• Employment rates among people ages 50 or more are increasing.

• Some 71% of individuals in the 50 to 64 age bracket were working in 2016 compared with 55.8 % in 1984.

• For those aged 65 or more, 10% of people are now working compared with just 4.9% 32 years ago.

• The gap between the employment rate of those aged between 50 and 64 and those aged between 35 and 49 has closed between 1984 and 2016 from 21% 32 years ago to 13.3% now.

Again all the sort of trends we would have expected, particularly on the subject of people working longer. Then a couple of slightly incongruent statistics:

– Workers are retiring at a younger age now than in 1950 in spite of life expectancy.

– Men left the labour market at an average age of 67 in 1950, compared with 65 now and women typically left at 63 both in 1950 and now, although the current retirees are generally a few months younger.

This is not expected to continue and state pension age is increasing, so much so that on current projections people under 30 could have a State Pension Age of 70!

My guess would be that we are seeing some of the last effects of the golden age of defined benefit pension schemes and indeed there were figures back in February 2017 that pensioners were better off than average workers. I am not sure this will continue as DC takes over from DB and we are also comparing since 1950 – a long period.

In reality we are an aging society, life expectancy seem to be increasing (although a few have questioned whether we have reached a peak) and as such we will have to work longer, rethinking employment patterns and the role of the State Pension Age and even perhaps the continued existence of a universal State pension.

I still can’t help but think that we need some sort of independent commission to plan for these changes which are going to have such a fundamental impact on the prosperity of our society.

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