If the government increases the state pension age to 67 from 2020, anyone still wishing to retire at 65 will need to put an extra £6,000 into their pension pot, a leading pensions expert calculates.
The two-year delay in paying the state pension has emerged as one of the expected recommendations of Adair Turner’s Pension Commission when it reports at the end of this month.
Replacing the state pension “lost” for those two years would require additional contributions up to retirement from people who are now aged 50 years or under, said Adrian Boulding, pensions strategy director at Legal & General.
Among other recommendations expected from the commission’s report are a more generous state pension and automatic enrolment – with the choice of opting out – in a new national savings plan.
To meet the large shortfalls in both public and private pension schemes, Turner is expected to call for a combination of higher taxes, more saving and longer working lives. The percentage of their lives that adult men spend in retirement has risen from 18 per cent in 1950 to 30.5 per cent.
Given these options, most people would rather save more than work longer, according to research by Nationwide Building Society: 52 per cent of people would rather save more while just 30 per cent would want to work longer.
But the complexity of the present pension system was a big disincentive to increasing saving. Seventy per cent of those polled claimed they would save more if the system were simplified.
Nationwide is calling for the pension commission to be appointed on a permanent basis to act as an independent body to collect data, make policy recommendations and carry out an annual review of pensions. “The commission should act as the nation’s pensions trustees,” said Philip Williamson, chief executive.
“The importance of the state pension for many people is emphasised by the results of a Mori survey for Help the Aged showing that one in five working adults aged between 18 and 54 expects the basic state pension to be their main source of income in retirement.
Younger people expect to be relatively less dependent purely on the state pension but the older age groups regard it as a more important factor. Thirty-four per cent of 41-54 year-olds, approaching retirement themselves, are most likely to cite the state pension, combined with a personal or occupational pension, as their main source of retirement income.
“The basic state pension as we know it [currently £82.05] is simply unfit for purpose,” said Michael Lake, director general of Help the Aged. “Yet, worryingly, large numbers of today’s workforce expect to rely on it in retirement. These statistics reveal why nothing short of a radical reform of retirement provision is urgently required.”
Some pensions experts believe that waiting until 2020 to improve the state pension in return for working longer will leave many pensioners poorly off in the meantime.
“Future pensioners cannot afford to wait,” said Tim Pindar, actuary of the Wesleyan Assurance Society. “The cost of delay is too great if people are seeking a retirement above means tested levels and which offers flexibility.”
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