Stuart Price, Partner and Actuary at Quantum Advisory, said: “Although an increase in the State Pension age has been on the table for some time so doesn’t come as a surprise, we would have thought they may have waited a bit longer before making the decision.
“Mortality is a key assumption when setting the State Pension age, and with recent statements from the Continuous Mortality Investigation (CMI) and now in Sir Michael’s report, we are hearing that mortality improvements in the UK have slowed down considerably. I think the Government is wrong to increase State Pension age at this time before analysing whether this slowdown is just a blip or a long term trend.
“Furthermore, it seems that yet again the younger generation is picking up the burden of us all living longer. This is compounded by the fact that the younger generation has lost access to defined benefit pension schemes, which in most cases are far superior to the alternative defined contribution arrangements that are made available to them.”
Commenting on David Gauke’s statement today, Adrian Boulding, Director of Policy, NOW: Pensions, said:“The Government’s intention to increase State Pension age from 67 to 68 – seven years earlier than expected – will be a blow to those generations who had hoped to retire in 2037.”
“Our research* shows that over half (48%) of UK adults would like to retire at the age of 61, with one in two (50%) happy to save more into their workplace pension to do so.”
“For those that want to stop working sooner, a workplace pension can bridge the financial gap but, for most, auto enrolment minimum contributions won’t be sufficient.”
“With the state pension slipping further from reach, the 2017 auto enrolment review needs to give serious consideration to the adequacy of workplace pension contributions, to give people the best chance of financial security in older age.”
Calum Cooper, Partner at Hymans Robertson responds to the government’s announcement to increase the state pension age (Spa) to 68, seven years earlier than initially planned: “It’s become impossible to ignore the fact that longevity has shot through the roof in recent years while the State Pension age has barely moved. It desperately needed to catch-up. The Government’s decision to bring this forward by seven years should be welcomed, particularly in the context of fairness to future generations. Despite recent slowdowns, life expectancy has risen considerably and at a pace higher than previous legislation allowed for.”
“However, Club Vita’s latest research, in collaboration with the PLSA, has found that while longevity improvements have been slowing for the average UK citizen – this masks what’s really going on. For men considered “affluent”, life expectancy has continued to increase whilst the same cannot be said for the “hard-pressed” or “making-do”. It’s fair to say the effects of an increase in SPA will not be felt equally by all.
Discussing the implications for pension schemes, he added: Not only has it never been more important for Defined Benefit (DB) pension schemes to consider the effects of longevity trends on their liabilities, but it’s also vital they consider their communications to members. Many DB open schemes now have retirement ages linked to SPA to manage longevity risk. In fact, we may now see more schemes link their retirement ages to SPA for future service as a means to maintain affordability and reduce longevity risk.
“Defined Contribution (DC) schemes should also be considering how this affects members. This will have a bearing on how employees should plan and provide for retirement. It may mean saving more or working a little longer for those affected. Schemes should be ensuring they communicate this change to members and what it could mean for their retirement outcomes.”
Commenting on the government’s decision to increase the state pension age, Alistair McQueen, Head of Savings & Retirement at Aviva said: “In reviewing the state pension age, Sir John Cridland’s brief was to deliver “a fair and affordable recommendation that encouraged a longer working life” (1).
“The state pension is a core part of retirement planning in the UK. Aviva’s own research tells us that 98% of over-55s see it as important to UK society and 80% see it as important to their own retirement finances (2).
“Aviva’s research also tells us that many people are confused by the state pension. The future increases in the state pension age must be communicated clearly and extensively. This will allow all to plan with clarity and confidence.
“We are also keen to see how the government responds to Crildand’s other recommendations – including support for those most in need in later life, such as carers, and the encouragement of career “MOTs” for those in their 50s. A full package of measures is needed to make the most of our longer working lives.”
Pete Glancy, Head of Policy Development at Scottish Widows, said: “The Government announcement that the state pension age increase will be brought forward by seven years highlights the need for people of all ages in the UK to prioritise making additional provision for retirement. This is crucial to avoid an unexpected shortfall – or a need to continue working beyond our desired retirement age.
“The 2017 Scottish Widows Retirement Report shows that the number of people saving adequately for retirement, which means putting away at least 12% of their income including employer contributions, has stalled at 56% for the third year running. Whilst it’s clear that auto-enrolment has been a success in kick-starting the savings habit for millions, it may well be lulling people into a false sense of security that they are putting away enough.
“While personal pensions have been seen by many as a means to top-up an income from the State Pension, we expect people will be increasingly looking to use their own savings to retire earlier than their State Pension age. Our research shows the average age at which people would like to retire is 63.
“Phased retirement will also likely be more popular too, with people working part-time but using their pension to maintain a similar level of earnings. Pension freedoms have helped to make this easier, allowing flexible access to a portion of your money to cover a period of part-time working, and then still have the range of retirement options available when fully retire.”
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