As life expectancy increases and the workforce dwindles, the state pension age could climb to 71 by 2050.
Recent research from the International Longevity Centre (ILC) suggests that the current state pension age of 66 may not be sustainable in the long term.
The challenge of longer lives
With the average life expectancy for men at 78.63 years and for women at 82.6 years, more people are living well into their 90s and even reaching 100. While this is a testament to advances in healthcare, it poses challenges for retirement planning. As people live longer, the ratio of workers to pensioners decreases, impacting the tax base needed to fund state pensions.
Rising retirement age
The state pension age is already scheduled to increase to 67 between May 2026 and March 2028, and then to 68 from 2044. However, the ILC suggests that these changes may need to be accelerated due to workforce gaps. By 2040, the state pension age may need to reach 70 or 71 to maintain equilibrium.
Addressing the issue
Falling birth rates and an ageing population contribute to workforce reductions and productivity challenges. While life expectancy stalled during austerity and the COVID-19 pandemic, the pressure to raise the state pension age remains. Enabling people to work longer is one solution, but it requires efforts to improve overall health.
Planning for retirement
Becky O’Connor from PensionBee expresses concern about the potential impact of a higher state pension age on retirees’ financial security. She emphasizes the importance of planning for retirement and diversifying savings to bridge potential income gaps.
Jon Greer of Quilter advises individuals to take ownership of their retirement planning and recommends increasing pension contributions or saving through different vehicles like ISAs.
While changes to the state pension age may be inevitable, individuals should receive adequate notice to adjust their plans accordingly. By taking proactive steps to save and invest wisely, you can better prepare for your golden years. Remember, it’s never too early to start planning for retirement.