Scottish pensions crisis: Scots born today ‘will retire at 77’

The age at which the public becomes eligible for a state pension is set to rise to 77 for today’s children, with the following generation likely to work until they are 85.

As the UK government announced in the Queen’s Speech that the state pension age will now be linked to how long the average person lives, and will rise to 67 in 2028, the new study predicts it will go up again to 68 by 2031, adding an extra year of work for those aged 48 or younger.

The report, by the world’s largest accountancy firm PwC, also states that people in their late 30s today can expect to work until they are 70 before they can claim their state pension.

However, the most striking prospect is that faced by children born this year who, according to PwC, will be working a full 17 years longer than their grandmothers, who were fortunate enough to retire at 60.

Meanwhile, the generation born in 2050 to those who are infants today can expect to work until they are 84 years old.

The reason for the rise in pensionable age is to ensure that the average period of time in which people live in retirement is maintained at an affordable level of 20 years.

PwC’s projections are based on the rate the state pension age has been accelerating and analysis of future life expectancies. It has taken into account recent figures from the Office for National Statistics that one-third of babies born in 2012 are expected to survive to celebrate their 100th birthday.

PwC’s research highlights that, while people born today will be working for longer, increased life expectancies mean they can expect to spend as long in retirement – around 20 years on average – as previous generations.

Alison Fleming, head of pensions at PwC in Scotland, said: “The era of retiring in your 60s is facing extinction with many people born today facing a future of work from 17 through to 77. People may want to stop working sooner, but the challenge will be whether they can afford to bridge the gap until the start of their state pension.

“The rising state pension age is putting even more pressure on people to save and as a result, even those in their 40s and 50s may want to start revising their pension plans now – particularly if their state pension age might shift by a couple of years.

“This gradual rise is also raising big questions for employers.

“It is not just the impact an ageing workforce will have on opportunities for younger employees, but how can they adapt their organisation models and working practices and what changes do they need to make now to the benefits they offer their employees?

“This isn’t something that can be pushed under the carpet to be dealt with at a future date – the state pension age is increasing steadily and firms need to start planning and adapting now.”

The crisis that is facing the government is that people are living longer and also having smaller families which results in a swelling number of pensioners supported by a shrinking number of people of working age. At the time when the first pension was introduced, there were, on average, ten workers whose taxes helped fund each pensioner.

But by 1970 this figure had dropped to 3.6 and will be down to 2.9 by 2050.

As a consequence, it is crucial that the public builds up a private secondary pension, say experts. However, according to the Pensions Policy Institute, the proportion of working age people contributing to a private pension is just 37 per cent for women and 40 per cent of men.

In order to raise these figures, the British government will make membership of a company pension scheme compulsory from October.

Age Scotland said that while they supported the government’s plans to introduce a flat-rate state pension in the future, it was important not to forget the 17 per cent of Scottish pensioners who currently live below the poverty line.

The organisation said that as life expectancy increased, it was only reasonable to consider increases to state pension age and longer working lives.

However, it pointed out that poorer people live shorter lives and so will have to sacrifice a larger portion of their retirement under the new plans.

Lindsay Scott, a spokesman for Age Scotland, said it was crucial that people did not rely on the state pension to provide for their retirement.

He said: “The simple reason is that successive governments have done nothing to make it sustainable.

“They put no money into it and what is going to happen in the future is that there is going to be this increasingly ageing population and fewer people working.

“A smaller, younger generation will have to provide the workforce and that is where the money to pay these pensions will come from, and so that is why people are going to have to work longer.

“Already, we are going up to 66 then 67 and soon it will be 70 within a decade. It is not an unreasonable thing to expect people to be working until 70 and 75 if they are living longer. Everybody should be having a pension and they should not rely on the government.

“Do not rely on the government to make provisions for your old age as you will be exceedingly disappointed.

“It is difficult for young people to see this. It is not a priority [for them].

“They want to buy a house or raise a family, so they think, ‘I will worry about a pension later’. But we say make your pension a priority as well.

“We face physical and mental decline, a loss of cognitive ability and if you are getting into a situation where you need treatment for your physical ailments and for your mental health, and you have no money, then you are in dire straits, because not only are pensions taking a beating, look what is happening to the NHS.

“I can think of nothing worse for your old age as to be old, sick and broke.”

The current full state pension for a single person is £102.15 a week and is set to rise to £107.45 next year.

According to a report by the Pensions Policy Institute, the weekly basic state pension is expected to rise to £200 by 2025 and £318.75 by 2035. Niki Cleal, director of the Pensions Policy Institute, said previously: “In the last three decades, life expectancy has increased dramatically in the UK.

“On the whole this is good news for individuals, but it also means that many people will need to save more and work longer if they want to have an adequate retirement income.”

The prospect of 70 and 80-year-olds in the workforce will soon become a reality, according to Professor Cary Cooper, professor of organisational psychology and health at Lancaster University Management School.

“It is going to happen but the workplace will have to change,” he said.

“You can’t be a nurse in orthopaedics lifting patients when you are 70, and it is inadvisable to try and hold down a demanding stressful job at that age of 80.

“So we will see a change in the standard working practice that currently consists of climbing up the greasy pole to ever more demanding and high-pressure jobs.

“Companies will have to adapt and find a way to use people in different ways as they get older and more frail.”

He does, however, believe that working for longer may have health benefits.

He said: “There is evidence emerging that remaining cognitively active helps to hold off dementia which currently costs us £19 billion a year and is expected to rise to £50bn, so there may yet be benefits to having an older workforce, but only if we manage it correctly.”

Last night, a Scottish Government spokesperson said: “We need the UK government to set out what its most recent proposals will mean for Scotland’s pensioners.

“What is increasingly clear is that an independent Scotland would be best placed to provide a fair and decent pension for all pensioners. Spending on pensions in Scotland represents a smaller share of Scottish tax revenues, including a geographical share of North Sea revenues, compared to the position for the UK as a whole.”