Friday, 25 June 2010
Explainer: Raising the pension age
What changes is the Government making?
The coalition plans to raise the pension age in 2016 to 66 for men and from 2020 for women. There is also talk of increasing the pension age to 70 or more over the next few decades, replacing the previous government's plans to increase the state pension age to 68 by 2046. The coalition also intends to abolish the existing default retirement age of 65, which means employers won't be able to dismiss workers just because they reach a certain age. Finally, the Government has confirmed plans to auto-enrol people into workplace pensions from 2012.
What have they not said today?
The subtext of today's announcements – and similar pension announcements from the previous government – is that if you don't start saving for your retirement now, you'll end up practically penniless with few choices when you finish working. The message from Iain Duncan Smith yesterday was: "Everyone needs to take responsibility for achieving the income in retirement they aspire to."
I'm in my twenties. Do I really need to think about this now?
It is a long way off but, presuming we all live that long, the fact that you may have to work longer before you can draw a state pension is not a cheery thought. However, if you are in your twenties you're in the best position to avoid having to work until you're 70. Saving now for your retirement will allow you to build up a decent nest-egg to give yourself the choice of retiring earlier – much earlier – if you wish.
Doesn't it discriminate against manual workers who might be exhausted by 60?
The National Pensioners Convention (NPC) warns that raising the retirement age will see some people being forced to work until they drop. "The wealthier you are, the longer you live, so raising the retirement age therefore is a direct attack on the very poorest in our society," says Dot Gibson, general secretary of the NPC. According to the latest NHS figures, men in Blackpool live to 73.2 years on average, which would give them just over three years to enjoy their retirement. Men in Kensington and Chelsea, by contrast, have a life expectancy of 84.7.
Will it lead to fewer jobs for graduates, as not as many older people will be retiring?
That's the concern of some. Compared to today, the number of people over 65 will be half as many again in 2030, and will have doubled by 2060, according to the Department for Work and Pensions. If more are being forced to work, there could be fewer jobs for graduates. But a more likely scenario is that today's young people will build up decent pension pots through the auto-enrolment scheme, which will force employers to set up retirement schemes. If so, their savings should be decent enough for them to be able to retire earlier, meaning they won't need to rely on the paltry state pension payouts which look likely to be on offer at the time. Then if more people retire early, more jobs will become available for graduates.
I'm 64 and have already made plans for retirement. What happens if it goes up to 70?
It won't happen in your working lifetime. In fact you'll be retired by the time the age climbs to 66. The increase will only hit people who are due to retire at 65 from 2016 onwards.
Do I actually have to do anything or is this all automatic?
With regards to the state pension, which is what this is all about, you need to do nothing. It will all happen automatically and you'll be told if your retirement age is changing. However, the important message for anyone in their twenties, thirties or forties is to start saving now for your retirement, if you haven't already. If you don't, you'll be left with very little choice when you reach your late sixties.
I have a pension but have no idea what I've accumulated so far. How do I find out?
You need to contact your pension providers. That could be your current employer's scheme, or that of previous firms you've worked for. If you have a private pension you'll need to contact the bank, life assurance company or building society that administers it. If you've lost track of your pension, contact the Pension Tracing Service.
Simon Read, Personal Finance Editor