Retirement age debate

An end to the default retirement age was signalled this week, which pension advisers said would bring employees greater flexibility over their retirement plans.

Speaking ahead of a government review of the retirement age, equality minister Harriet Harman said people should be able to continue working into their 70s or 80s if they wished. At present, employers can force staff to stop working at 65, which Harman described as “arbitrary”.

This fixed retirement
age can mean that employees are not able
to work for extra years and top up their pensions. During the credit crunch,
it also meant that many were forced to retire at a point when their pension funds had fallen significantly in value.

Most employers impose a set retirement age of 65. But the state pension age is due to rise to 68 by 2046, prompting ministers to take action to prevent some people from having no income for three years.

Laith Khalaf, a pension adviser at Hargreaves Lansdown, said that abolishing the default retirement age could lead to a two-tier system at some final-salary schemes. Employees would be entitled to existing benefits at age 65, but with new benefits accrued paid at a later date.

Khalaf added that any resulting confusion would be offset by the fact that people would gain more control over their pensions and when they could retire.

A flexible retirement age could even give employers an incentive to improve their pension offerings,
if they did not want the uncertainty of not knowing when their employees would retire.

“It might give employers a vested interest in providing decent pensions,” argued Khalaf.