The age at which people receive the State Pension has been increasing steadily as people live longer. The State Pension age rose to 66 for both men and women in 2020, with two further increases currently set out in legislation.
However, according to experts, the government could be facing a “tricky balancing act” on State Pension policy after new figures released by the Office for National Statistics (ONS) revealed that the rate of life expectancy increases is slowing. Here is everything you need to know.
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What does the new ONS data show?
Hargreaves Lansdown has analysed the new life expectancy and population data from the ONS and highlighted the following:
- 13.6% of boys and 19.0% of girls born in the UK in 2020 are expected to live to at least 100 years of age. This will increase to 20.9% of boys and 27.0% of girls born in 2045.
- Although life expectancy improvements have slowed down, the UK population is continuing to age.
- The number of people of pensionable age is expected to increase to 15.2 million by mid-2045, up from 11.9 million in mid-2020.
- The working-age population, meanwhile, is expected to grow at a much slower rate, from 42.5 million to 44.6 million.
- The old-age dependency ratio (the number of people of pensionable age for every 1,000 people of working age), is expected to rise to 341 by mid-2045, up from 280 in mid-2020.
What does this mean for the State Pension age?
According to Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, ‘pension power’ is on the rise. This is evidenced by the increasing proportion of the population expected to live to 100.
But while it’s wonderful that some people will get to live longer lives, the fact that Brits are also having fewer children means “fewer people shouldering the burden of a much larger State Pension bill”. This, she claims, leaves the government with a “tricky balancing act.”
In recent years, the State Pension age has risen rapidly to accommodate this. However, the situation is a bit trickier now, according to Morrissey. This is because life expectancy does not appear to be increasing at the same pace as it did previously.
In 2014, the ONS believed that by 2028, the year in which the State Pension age is set to rise to 67, the average 67-year-old man would live for another 21.1 years while a woman of the same age would live for a further 23.1 years. The ONS has now revised these figures. The average life expectancy of a 67-year-old man or woman in 2028 is now 8.7 years and 20.8 years, respectively.
A government review of the State Pension age is currently underway. One of the main items of discussion is whether to bring a planned rise in State Pension age to 68 forward to 2037/39 (instead of 2044/2046).
On the one hand, the ONS’s recent downward revision of life expectancy could put a stop to this proposal. On the other, the larger State Pension bill that’s likely to be brought on by an ageing population may lead to the review recommending the hastening of the State Pension age increase.
We won’t know the findings of the review until 2023.
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How can you protect your retirement?
Are you worried about how potential State Pension age and life expectancy changes could affect your retirement? Well, here are two steps you can take to make sure that you are as financially prepared as possible.
1. Boost your pension
Living longer or receiving State Pension later than expected means that you need to have a much bigger pension pot to support you. One way to boost your retirement pot is to increase your contributions to your workplace pension, if possible.
When you increase your workplace pension, some employers will also increase what they pay in. Additionally, making extra contributions to your pension scheme can provide an immediate boost to your retirement fund in the form of tax relief.
2. Invest wisely
Are you relying solely on your savings for retirement? Unless you’re getting a good return on these savings, it might be difficult to save enough to cover your retirement. You could find yourself with a shortfall if you also happen to live longer than you expect.
In the current low-interest-rate environment, consider investing some of your savings in assets with the potential for higher returns. For example, though they are riskier, stocks and shares have historically delivered better returns than savings accounts and could be an option worth looking into.
