I turn 50 next month. As well as lamenting my husband’s poor decision to organise a boys’ get-together on my birthday weekend, I find myself looking more at retirement. What might it look like for me compared with my parents, and what might lie ahead for those who still possess the most valuable asset of all — time.
Since Labour took office, the retirement assumptions that many of us planned around have come into question. As well as pensions being pulled into inheritance tax, the UK state pension age is likely to keep rising. For me this will mean an increase to 57 for private pensions and 67 for my state pension and those further from retirement are likely to have even longer to wait before they can access retirement savings.
I can’t say I’m against the hike in age. But that could be because it sits comfortably within what were already my plans. It feels obvious to me that several interlocking factors are driving this push, however.
• The state pension triple lock needs to be retired
First, people are living longer, a triumph of modern life that means they spend more years in retirement. The knock-on effect of this is that the ratio of workers to pensioners is dwindling, and the system depends on those workers paying national insurance to fund today’s retired people. In other words, the calculus is changing.
Then there is the triple lock, which guarantees that the state pension rises every year by the highest of earnings growth, inflation or 2.5 per cent. This year wages were up 4.8 per cent, so from next April the state pension will rise by the same amount. That means £241 a week, or just over £12,500 a year.
For those already retired, this is welcome news. For younger taxpayers it raises an awkward question: how sustainable is it to keep funding these generous annual increases for a generation that, on average, is already wealthier than any that came before?
Pensioners are happily sitting on most of the nation’s housing wealth, and many still benefit from gold-plated final salary schemes that have all but vanished from the private sector. Compare that with the record high rents, insecure work and declining home ownership for the younger generation, and the triple lock starts to feel like a political boiling pot serving as a stark reminder of a growing generational wealth gap.
• The pension deal that pays you to retire early
For my generation, the rules are shifting but not unrecognisably so. I can still hope to draw the state pension at 67 and that sits fine with me. It is due to go up to 68 in the mid-2040s. Should the next review bring that change forward by several years, as suggested by the media, then one estimate suggests a 51-year-old today could lose nearly £18,000 in benefits.
For those of us who have spent decades saving into private pensions to supplement the state system, this doesn’t have to spell disaster but it does require a tweak to the retirement plan. I’m in the fortunate position that I not only enjoy my job, but I can work from a laptop.
The prospect of working longer is undoubtedly daunting for those in physically demanding or high-stress roles. For those in their twenties and thirties, the outlook may seem starker. They will be unable to access their state pension until 68, and experts warn that it will have to become 71 to balance the books.
There are even calls to link the retirement age to life expectancy. If this comes to pass, younger workers could face 45 or even 50 years in employment before qualifying for the same support their grandparents received after only 40.
• HMRC: ‘Yes, we owe you £58k in pension tax— you’ll get it in ten months’
This could make the state pension more of a safety net, and retirement may start to look a little different, with people choosing to transition into retirement rather than experience a clean break. Pensioners working part-time or engaging in side hustles or consultancy could become more common.
Perhaps it’s time to accept that the state is unlikely to deliver retirement in the same way it did for our parents. With these shifting foundations, it is surely more prudent than ever for every worker, young and old, to save into a private or workplace pension.
As for me, I’ll still celebrate turning 50 even if my husband’s social diary clashes with mine. But I’ll also be marking it with a quiet acknowledgment that the dream of retiring at 65, state pension in hand, has slipped away.
Retirement isn’t vanishing, it’s just being redrawn. The only question is whether the next generation will have the time, and the means, to reach it.
Antonia Medlicott is the founder of the personal finance site Investing Insiders