Aberdeen's oil boom may turn into a retirement-age bust

Aberdeen is due to see the greatest increase of any UK city in the proportion of workers turning 65 in two years' time, according to new government figures. The Department of Work and Pensions (DWP) has revealed that pension payments will soar in 2012, as 800,000 people reach their 65th birthday, 150,000 more than in 2011.

The increase is due to a spike in births in the immediate post-war years, which produced a baby-boomer generation that is already driving up state pension payouts. The DWP expects the greatest increase in the number of people aged 65 or over to be in Aberdeen, followed by Hull and Kingston on Thames.

Steve Webb, the pensions minister, said: "People are now living longer, healthier lives and most 65-year olds can expect to live until their late eighties. State pensions need to reflect this and we need to make sure that the system is sustainable."

The government is reviewing pension reform measures, including a proposal to bring forward increasing the state pension age and plans to scrap the default retirement age (DRA).

But Fraser Smart, managing director at Buck Consultants in Edinburgh, said the dramatic demographic shift expected in Aberdeen will pose new challenges for both individuals and businesses in the city, which has a generation of people reaching retirement who arrived when the Scottish oil industry was expanding in the 1970s.

"Although this generation is comparatively wealthy - many will have paid off mortgages long ago and will be benefiting from the rise in house prices in the last 20 years - better health will mean that many of these potential retirees will be unwilling to retire," said Smart.

The planned abolition of the DRA could mean many workers can extend their working lives.

"For a city like Aberdeen, which is witnessing increasing levels of unemployment, this has the potential to seriously disrupt the employment cycle," said Smart. "Younger workers may be shut out of jobs or promotions as older workers stay on."

But pension schemes will benefit if employees decide to keep working at 65, he added. "Deferred payouts for those who continue working will give some respite to under-financed funds, while continued contributions give them extra finances."