March 2018
The government should avoid raising the pension age as it intends this year, and instead encourage an ‘active ageing environment’, a report has recommended.
The report, by the Centre for the Study of Financial Innovation (CSFI) warned it’s ‘not enough’ to raise the pension age to address the issues caused by an ageing population and urged the government to do more to improve the health and economic activity for those over 50.
The ‘The Dependency Trap: are we fit enough to face the future?’ report, authored by Professor Les Mayhew of Cass Business School, suggested that as people reach their 50s, their participation in the workforce can be blighted by ill health or disability.
A press release following the report, published on City University’s website, highlighted the inequalities that can be seen in the ill health and ability to work by local area.
In particular, it said: “In a third of UK districts, healthy life expectancy falls short of 70, exposing the limits to a policy of raising the state pension age (SPA) as a tool to tackle the economic and social issues of an ageing society.”
The research suggested that by concentrating instead on improving health and work capability before retirement, earnings and savings levels would increase, as well as providing the tax revenues needed to fund state benefits.
The report also recommended tackling gender inequality by introducing specific pension and savings measures for women as men earn – on average - 80 per cent more than women which over a lifetime would have a ‘knock-on effect’ on respective pension prospects.
Jane Fuller, CFSI co-director, highlighted that working partners should be able to contribute to their non-working partners’ pension pots and benefit from tax relief. She also suggested that ‘new financial products’ similar to care annuities could be developed to assist those in the ‘sandwich years’ - a growing phenomenon that affects women disproportionately as caring responsibilities for children and elderly relatives overlap.
The report’s author, Professor Mayhew, warned that the government’s response to raise SPA, first for women and then for everyone from this year, has inadvertently encouraged people to expect to spend up to a third of adult life in retirement.
“If you take into account the impact of disability on dependency, the SPA might need to rise even faster than currently proposed which would bury the one-third ideal” he explained.
“This would not be necessary under the ‘active ageing scenario’, which would raise the overall activity rate of the working-age population from 80% to 85%. Most importantly, the improvement could largely be achieved if just one in six of those aged over 50 who are now inactive were in work. This would not just benefit the individuals concerned but also improve the nation’s economic and fiscal outlook,” he added.
Sarah Hamilton, senior pensions consultant at Aon, said it was ‘apparent’ that more time is needed to educate individuals around the ‘clear connection’ between health and financial wellbeing.
She explained: “This is likely to fall to employers rather than the government and we are seeing more employers now providing support to help their workforce understand this. In addition, the proposed future changes to automatic enrolment, to lower the minimum age from 18 to 22 and to remove the lower level of qualifying earnings, should also help to get workers saving early, and importantly help lower earners or those with multiple jobs to start saving towards retirement.”
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