Working past 70 – the pensions crisis

Paul Yates, Avelo

Is early retirement soon to be a thing of the past? Certainly for those without the benefit of generous company/public sector pension schemes or the option of cashing in on the rapid rise in property prices, the answer is a resounding yes.

The stark reality for future generations is to either save into a pension earlier and at a higher rate, or work longer  – and by longer you are talking age 70 (and rising as people live longer!).

People are having to ‘re-boot’ their retirement expectations.  A simple online pension calculator will often provide a harsh reality check but what is needed then is a plan – this is no time for sticking heads in the sand.  ‘My income when I retire is going to drop by 75% – what steps can be taken to get things back on track?’

Increasing pension contributions; equity release; extending working life; phased retirement; retraining; debt management; all these elements come into play.

Even for people who have made reasonable pension contributions over say 30 or 40 years in employment, it is important they maintain a coherent retirement plan and  possibly hold fire and not drawdown too much too early. Possibly retraining to work in a less pressured role might prove the smart move – a phased retirement rather than a dramatic move from salary to pension.

So far we’ve focused on what faces those approaching retirement but what lessons must be learnt by those starting out in the UK workplace and where can our industry provide most help?

In the past things were far simpler – we joined a company; we joined its pension scheme. We worked there for a large part of our working lives and then we retired. The amount of pension we built up was easy to understand and was guaranteed.

Now there is not the same enthusiasm or commitment to company schemes – only 35% of working Brits are in private sector employer pension schemes.

Young people often see pensions as something to put off until later– especially with student loans to contend with or costs of taking the first step on the property ladder – something we’re also coming to later in life  than used to be the norm. It is hard to get someone who is 20 to think about their 70s. Pension compulsion should help enormously, but we have to ensure people do not opt out and do pay in more than the minimum.

Education is crucial here – the impact of opting out needs to be clearly quantified – for every time you don’t pay into a tax efficient pension in your 20s; you are going to have to pay massively more to make up the shortfall in your 30s and 40s. It should be about explaining the tangible benefits of increasing contributions when you can – for instance when there is a pay rise.

The single most important consideration and the message we all need to help deliver is that everyone should have a retirement plan that they take wherever they go – everything else then falls into place. The bottom line is that by forward planning in this way, working into your 70s becomes an option rather than a necessity.