The estimated age at which workers can comfortably retire has been on the move for some time. A report published this week has revealed that it has drifted back once again. Royal London’s study, gloomily named The death of retirement
, concludes that even workers on higher salaries will likely need to work into their late 70s before they can afford to retire.
And, if workers want a ‘decent’ retirement – that is, on an income of two-thirds their salary – they could even be octogenarians by the time they start their work-free golden years. An effectively impossible goal
Olivia Rudgard, writing for The Telegraph
, outlines the situation: “A higher earner with an index-linked pension that rises with inflation, and which also pays a reduced income to a spouse if the pensioner dies first, would have to work until 85 to retire on two-thirds of their salary – making it an ‘effectively impossible’ goal.”
She goes on to explain that even if workers on average earnings start contributing to their pension at 22, they would need to be employed until they are 77 to be able to retire on two-thirds of their working salary, which is considered the ‘golden standard’ level.
In its report, Royal London blames the decline in defined benefit schemes for this less than desirable situation.
Rudgard points out that defined contribution schemes – which have ostensibly replaced defined benefit schemes – are far less favourable for workers, as the employee carries the investment risk rather than the employer. “There is no promised level of retirement income with the latter type of scheme,” she says. The Telegraph article A cruel disappointmentProfessional Adviser
’s report on the Royal London findings places its focus on the UK Government’s auto-enrolment scheme. It reminds readers that the scheme requires employees to contribute a minimum of 8% of their salaries.
The article quotes Steve Webb, Royal London Director of Policy: “Getting millions more people saving through automatic enrolment is a huge step forward, but many face a cruel disappointment if they think that current minimum contribution levels will deliver them the sort of retirement they are looking for.
“Without significant increases in contributions, we could be witnessing the death of retirement,” warns Webb.
The situation, the article says, is likely to be even worse for those who hold off contributing to their pensions until later in life. It points to data in the report that indicates people who start saving at 35 will need to work until they’re 79 to reach the ‘gold standard’ level of retirement. Professional Adviser report Generation gap
The take-home message from Hayley Kirton’s article for City AM
is that the 8% rate required under auto-enrolment is too low. Kirton emphasises findings from the report that suggest that contributions of 20% of an employee’s gross salary would be more realistic if they hope to reach any sort of comfortable standard of retirement.
Kirton notes that the report comes amid other recent survey findings that reveal that thirty-somethings in the UK regularly worry about long-term finances and that British workers feel their parents’ generation are enjoying a much better retirement standard than they will.
And that’s a concern backed up by Royal London’s Webb. He is quoted: “This report shows that today’s workers are unlikely to be able to secure the quality of pension provision enjoyed by many in previous generations.” City A.M. comment Seen a blog, news story or discussion online that you think might interest CISI members? Email firstname.lastname@example.org