Andrew Tully, senior pensions policy manager at Standard Life
The UK population is changing. Fast. The death of traditional retirement patterns is very much in the news at the moment with many indicators confirming the traditional model of retirement is long gone. A generation ago most people reached state pension age on a Friday, received their carriage clock, and were retired from Monday onwards. Now, more than 1.36 million people in the UK are working after state pension age1, and recent Standard Life research tells us that many more people approaching retirement want to, and expect to, keep on working past traditional retirement age.
Our research3 shows that one in six people want to work beyond the age of 65. And this is even greater among the baby boom generation where two in five of the more affluent 46-65 year olds say they would like to remain involved in work after age 65, on their own terms2.
Perhaps more tellingly, 37% of people believe they will have to work beyond age 65, whether they want to or not3. This reflects the triple-whammy of inadequate retirement provision, decreasing state pension benefits and increasing life expectancy.
Recent Government announcements point in the same direction. Currently employers can prevent employees working past age 65, even if the individual wants to continue. But the Government is bringing forward a review of this default retirement age to 2010, with indications the restrictions will be removed, and people will be able to work as long as they want to. And Lord Turner - architect of the current round of pension reforms, and chairman of the Financial Services Authority - has said he wishes he had been more radical by increasing state pension age higher and faster than he originally recommended.
All of this points to a new way of retiring over the next 10 or 20 years. Employers will not dictate retirement ages. Instead, people will be able to carry on working for as long as they want to, or need to.
This is positive in many ways. People do not want to be told they should stop working at a certain age. As life expectancy increases and health benefits develop, tomorrow's pensioners want to travel, work and live life on their terms - rather than being boxed into the traditional picture where they withdraw from active life. For these people, removing barriers and allowing them to work into later life is a positive step.
Unfortunately, for many others, working into later life will be a requirement rather than a choice. We already know that state pension age is going to increase to, at least, age 68 by the mid-2040s. Lord Turner's recent comments show the reality may be a quicker move to an even higher state pension age. The current low level of savings which many people have, coupled with the later commencement of state pension benefits, means the reality will be that people cannot afford to retire when they wish to.
By understanding a customer's aspirations and making these the centre of their financial planning, we can hopefully help them understand their needs and goals. For example, the ability to take benefits in a flexible way at retirement is likely to appeal to many, as they ease into retirement or move to part-time working. In that way we can better engage customers and help them towards a better financial future. The alternative is people living around one-third of their life in poverty.
1Office for National Statistics, Labour Market Statistics, July 2009
2Standard Life research, January 2009
3Standard Life research, May 2009
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