Pension Age Will Increase – Pensionfinder
Rising costs mean that the government will have to increase the pension age to 72 from 65 so that they can keep costs at the same level they were in the previous generation.
According to the Pensions Policy Institute (PPI), it is unreasonable for modern people to expect to retire at the same age as older generations because our life expectancy has increased. Yet they also stated it was a fact that rich people lived longer so poorer people should receive higher pension amounts. These comments were suggested by the Institute in a submission to the Department for Work and Pensions regarding a review of the pension age.
At present, women receive the pension of £97.65 at the age of 60 with men benefiting at 65. According to plans implemented by the Labour government, the ages were due to be the same by 2020 and rise to 68 by 2046. Yet the current government seems keen to alter this with plans to increase the pension age to 66 for men by 2016 with women joining them on this figure by 2020. New laws to be introduced next year will scrap the Default Retirement Age and make it illegal for organisations to remove staff once they reach 65.
The PPI states that this plan will save £3.5 billion by 2022 because of the dual effect of the government receiving more tax from older workers as well as having to pay less in pension benefits. Yet an independent think-tank suggests that the government should pay less attention to cost savings and focus more on the increased longevity of its citizens. As this generation’s life expectancy has increased, the retirement age has remained the same which means that people are spending longer in retirement which naturally costs more as their benefits need to be financed.
60 years ago, men spent only 10.8 years out of 78 in retirement which means they were in retirement for 18% of their lives. 30 years on however, this figure had risen to 23.5% and now it is at 33%. The PPI believes that in order to get costs down to the level they were ten years ago, the pension age would need to be increased to 68 and this would rise to 72 in order to trim costs back to 1981 levels. This would mean a huge increase in the SPA over a short period of time.
If the time spent in retirement does not change, it will cause government costs to increase as well as being unfair to younger generations who will be forced to pay higher levels of tax in order to fund these long retirements. Yet official figures show that the amount of people who are continuing to work beyond the current retirement age is the highest it has ever been. This is because older workers may have a shortfall in their savings or pension funds and it is necessary for them to stay in employment. At present, there are 823,000 over 65s in employment in the UK.
The think-tank warned that older people are claiming ill-health or disability money which will also increase government costs. The prevailing belief is that employees need to be given at least 10 years warning with regards to changes in the pension system. The PPI also pointed out that an increasing pension age would be unfair on unskilled workers who live 5 years less than skilled workers so they would suffer from having less time to enjoy retirement. The PPI’s final suggestion was that the government needed to concentrate on cutting the gap between the life expectancy of rich and poor people as well as a potentially ‘radical solution’ which would involve giving poorer people higher pensions than wealthy professionals.