FOOL'S EYE VIEW
So You Want To Retire Early?

By James Carlisle
February 11, 2002

Fulham -- Over the last 40 years, our retirements have been stretched from both ends. Soon we'll reach a stage where they're so big that we just can't afford them. At that point, something will have to give and, unless we plan on dying younger, then it looks like we'll need to retire later. That seems to be the effect of 'Pension Incentives and the Pattern of Retirement', a paper from the Institute for Fiscal Studies.

Back in 1970, a 65-year old man could expect to live for a further 12 years and a woman for a further 16 years. As of 2000, men can expect to survive for 15 years after reaching 65. Women, however, have moved on and can now expect a further 19 years.

Over the same period, men have been retiring younger and younger. In 1970, around 80% of men aged 55-59 and 70% of men aged 60-64 were in work. These percentages have now dropped to 50% and 30%. For women, the figures are probably balanced by more women entering the workforce and the same proportion of 55-59 year olds (around 35%) and 60-64 year olds (around 15%) are in work now as were in work in 1970.

This trend towards early retirement has been helped along by a shift away from defined benefit occupational pensions and the reducing value of the state pension (thanks to the removal of the earnings link). These have combined to reduce the significance of 65 as the age for retirement. Instead there has been a shift towards private pension provision and a more flexible retirement date. There has also been a rapid increase in the number of men claiming incapacity benefit through the 1990s, from a million to a million and a half claimants, and it seems likely that this has helped fund many of the early retirements.

The paper from the Institute of Fiscal Studies says that this trend is likely to stop. To start with, it looks as though many people, perhaps underestimating their longevity, have made the decision to retire 'too early' and don't have the resources to enjoy it properly. This would hopefully lead to a better assessment of the situation by future retirees.

It is also argued that a continuing reduction in the real value of the State Pension and the shift away from defined benefit occupational pensions will serve to increase the retirement age. That seems odd since these things have apparently also contributed to the falling retirement age. It can probably be rationalised on the basis that they reduce the reliance on the age of 65 but, as the trends continue, they leave less money in the pocket and start to push the retirement age back up again. More obvious is the expected impact of incapacity benefit. Since it was reformed in 1995, its value has been reduced and this will tend to make early retirement less appealing. There is also the increase in women's 'statutory retirement age' from 60 to 65 by 2020.

It's all very well to talk about people retiring later, but it pre-supposes that the work is there. If you reckon that there is a certain amount of work available, then more oldies in the work force would mean more youngies on the dole. More likely, though, with the problem of ageism, it'll mean a core of unemployed old folk. It really makes no difference whether they're defined as a poor pensioner or a poor 'jobseeker'. As always, the challenge is to manage an economy that generates opportunity and wealth and share it out fairly.

People have got used to the idea of retiring early. For many of us, it's a definite ambition. If you ask people in their twenties and thirties whether they fancy working in their sixties, you'll get a resounding 'no'. But the trends apparently suggest that most of us are going to be wrong about that. Even if we are happy to apply ourselves to the daily grind in our sixties, it may not be easy to get the work.

One way or another, it looks like there's going to be a large slab of poor 60 and 70 year olds in a few decades time and there won't be much they can do about it. There's really just the one solution to it and that is to GET SAVING WHILE YOU CAN!

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