Research shows that in the next decade the UK’s population is on track to rise by 4.4 million, and by 10 million in 25 years, due in part to an ageing population. As the population ages, and the balance between those who are able to work and those who are not shifts, the need for measures to address the requirements of longer retirements intensifies.
But, as the UK state pension age creeps ever higher, so does the discrepancy between the age at which people want to retire and the reality of when they will be able to. The Working Late Report carried out by Wealth Wizards earlier this year showed that the average desired age of retirement in the UK is 60. Meanwhile, the average age at which people believe they will be financially able to retire is 69, adding almost an extra decade of unwanted working years. Moreover, 20% of those surveyed do not feel they will ever be able to retire.
The ageing population is a global issue, by no means is it limited to the UK. So how does our approach to pensions differ compared to other cultures around the world and are increases to the state pension age a necessary evil?
The Organization for Economic Co-operation and Development (OECD), analysed data from its 35 member countries and a number of other nations and found that pensioners in the UK are getting a poorer deal than any OECD country, receiving a mere 29% of a working wage upon retirement. The pension rate in the United States increases somewhat to 49%, while in China, which has a population of over 1.4 billion people, the rate is 83% according to OECD data.
Meanwhile retirees in Turkey, Croatia and the Netherlands, receive over 100% of a working wage upon retirement. Croatians are in the lead with a substantial 129% followed by Dutch and Turkish pensioners who receive 101% and 102%.
While it may seem like pensioners in countries like these are getting a better deal – what does this mean in the long run?
The ageing population the world over inevitably means that people are drawing a state pension for more years than systems such as these were designed to sustain. Data from The World Bank, indicated that retirees in the six countries with the biggest pension systems (Australia, Canada, UK, USA, Japan, Netherlands) are living 8 to 11 years longer (16 years longer in Japan)[i].
These systems are expected to create a combined gap of $224 trillion by 2050, having a huge impact on future generations. This is where increases to the state pension age come in. In the UK for example, the state pension age will increase for both men and women to reach 66 by October 2020. There are also plans for further increases to raise this further to 67 between 2026 and 2028.
Other measures like auto-enrolment, designed to plug the gap by encouraging individuals to take more responsibility for their financial well-being in retirement, have been rolled out in the UK. Steps are also being taken to raise awareness of just how little the state pension will leave people to live on if relied upon in isolation.
More measures are needed on a global scale to address the magnitude of the global pensions gap but we all need to play our part. Employers can play their part by making sure their employees are informed about what personal measures they need to put in place to ensure that they are able to support themselves adequately in retirement. For this to happen it is important that financial advice is made accessible by employers so that individuals can make sensible decisions during their working life to create their own safety net for the future. And with advances in technology giving rise to sophisticated automated advice tools like Wealth Wizards, this has become more of a reality than ever before.