SCOTS in their forties or younger have been warned to boost their savings or face working into their 70s after the UK government announced a further acceleration in the state pension age increase.
The state pension age will rise to 68 in the 2030s and 69 by the late 2040s, under the revised timetable revealed in the Autumn Statement on Thursday. It was previously set to reach 68 by 2046, but it has again been brought forward to keep pace with life expectancy.
As it stands, many workers in their 50s will need to be 67 before then can claim their state pension, while people in their 40s now will have to wait until 68, those in their 30s until 69 and today’s twenty-somethings will be at least 70.
The state pension age is already going up for women born between April 1950 and December 1953, reaching 65 by 2018. It will then rise for all workers to 66 between 2018 and 2020, then to 67 between 2026 and 2028. The changes announced on Thursday mean it will reach 68, 69 and then 70 sooner than previously expected.
And further timetable amendments are likely, with a provision in the Pensions Bill committing the government to a review at least every six years.
But while the average worker in the UK wants to retire at 66, according to research by Scottish Widows, current savings levels mean many will have to work for longer. Its annual pensions report found that the average desired retirement income is £25,000 a year, where savings have started at age 30.
“Achieving that level of income is likely to require contributions of around £1,000 per month, which is almost eight times the automatic enrolment minimum for someone earning £25,000 a year and likely to be beyond the reach of most,” said Ian Naismith, pensions expert at Scottish Widows.
Yet current savings levels mean many people will be working beyond the state pension age, regardless of when it is set. The average worker saves just over 9 per cent of their salary each year, according to Scottish Widows, which said anything below 12 per cent is inadequate.
Another report published earlier this year, by JP Morgan Asset Management, found that 52 per cent of women and 39 per cent of men are not saving at all for retirement.
“It is clear that private pensions will need to play a bigger role in the nation’s saving habits – saving into a private pension from age 20 rather than 30 to 65 could add almost two-fifths to the final pension,” said Naismith.
People hoping to retire at the current state pension age need an additional £7,500 to £10,000 in savings for every year the state pension age is put back, said Martin Reynard, at chartered accountants Blick Rothenberg. “While no-one should rely on the state pension alone, at £7,500 to £10,000 a year, it makes a valuable contribution to any household budget and its postponement will impact on retirement plans,” he said.
“If current trends are anything to go by and anticipating an ever rising state pension age, those in their 20s and 30s might want to save up an extra £50,000 over the next 30 to 40 years if they want to retire when their parents did.”
But children born today won’t qualify for the state pension until at least their 72nd birthday, according to Andrew Tully, pensions technical director at MGM Advantage.
“While many see their state pension age as a trigger for when to take their private pension benefits there doesn’t need to be a link so people can still plan to retire when they wish. But it does make personal savings ever more important in the retirement planning jigsaw, along with taking financial advice around how and when to take benefits.”