New figures from the Office for National Statistics (ONS) show that the average retirement age for men has risen to 64.6 and for women to 62.2. By the time they reach 65, some 54.8% of men have retired, but 34% continue working beyond this, many of them part time.
Live longer, work longer
Life expectancy for those who reach 65 has been rising for years. In 1981, a man of 65 could expect to live another 13 years. By 2008, this had risen to 17.6 additional years. For women of 65, life expectancy rose from 16.9 years to 20.3 years. By 2051, the figure for men is expected to rise further to 25.9 years and for women to 28.3 years.
While this is good news, the ONS report noted that: ‘This will cause the ratio of retired people to those of working age to rise considerably, putting increased pressure on the pension system.’
To counter these demographic pressures, the government has already begun a process of raising the state pension age. It will rise to 65 for women by November 2018 and to 66 for both men and women in October 2020. Beyond this, it has been suggested that state pension age will rise again to 67 by 2026.
Saving for a pension
While the state pension system is under pressure, living longer also has implications for private pension savings. Those who save through a workplace pension scheme can boost their retirement income considerably, but as life expectancy grows, the money they have invested has to last longer and be safeguarded from the impact of inflation.
The challenge this presents is considerable, particularly for those in defined contribution (DC) pension schemes, rather than old-style defined benefit (DB) pension schemes. In DC schemes, employees bear more investment risk and are also faced with the task of turning their pension savings into retirement income. Most do this by buying an annuity.
Buying an annuity
Annuity rates have fallen sharply in the past year, mainly due to falling gilt yields but also as a consequence of increased life expectancy. Which? pensions expert, Ian Robinson, said: ‘Faced with the necessity of safeguarding your pension, it is crucial to plan for retirement in advance and get the best possible deal when you do come to take pension income.
‘Shopping around for the best annuity rate is an obvious way to do this, rather than settling for the first amount you are offered. It’s important to choose the right sort of annuity too. Professional advice can help you make the best decision. Starting pension saving early can pay off too, which is why auto-enrolment should help millions of people enjoy a more prosperous retirement.’