Menu Menu

Category — Rethinking Retirement

Tomorrow could be the start of a whole new retirement

29 June 2014

  • Right to request flexible working for all starts tomorrow
  • Government giving green light to redefine retirement – encouraging flexible working in later life
  • A win-win-win – better for older people’s health and wealth and better for the economy

All workers can request flexible working:  From 30th June, the Government is giving all workers the right to request flexible working.  So far, parents and carers can ask their employer to allow them to work flexibly, but now all workers will be able to.  Employers have been agreeing to over 70% of such requests, so it is likely that increasing numbers of older people will be able to work part-time in future.

Older workers can benefit from easing into retirement more gently:  This will help to redefine retirement.  Rather than retirement meaning stopping work completely, it can increasingly mean cutting working hours first, before stopping altogether.  Already, more than 1 million people in the UK are working past age 65, the majority part-time, and this is likely to extend to many more in future.

Rethinking retirement is better for the nation’s health, wealth and growth:  Retirement will become more of a process than an event, and longer working lives is a win-win-win for all of us, especially as the population is rapidly aging.  Most people in their 60s nowadays are still fit and strong and capable of working, although they may prefer to work less than full-time.  Having the chance to stay in work offers the opportunity to earn more money and also to build up a bigger pension.  But working longer does not just increase wealth, it will also improve health.  Studies show that people who retire suffer a deterioration in their health, often become more lonely and miss the social interaction of working life.  With increasing numbers of baby boomers reaching their sixties, keeping more of them in work will improve the economy and create more growth for all of us.

Older workers are a precious national resource:  Helping older people stay in work allows the whole economy to benefit from the huge range of skills, talent and experience that they have gained during their working years.  If too many suddenly stop work and have low pension income, the outlook for growth will deteriorate, whereas keeping them in work on a part-time basis will increase their income, should increase their eventual pension and also contribute to economic output.

Flexible working can improve the lives of millions in future:  The right to flexible working marks another advance for older people who can benefit from a better work-life balance as they get older, without having to stop working altogether when they are still in good health and have twenty or thirty years ahead of them.

June 29, 2014   No Comments

A wake-up call to embrace benefits of saving and working longer

17 December 2013

  • IFS study is a wake-up call to embrace benefits of saving and working longer
  • Headlines of younger generations being much worse off than previous generations are too negative
  • IFS shows younger cohorts were much better off earlier in their lives but spent rather than saved – as economy picks up they can rethink their lives

IFS report shows lower incomes for younger generations partly result from failure to save:  Today’s IFS report has led to dire warnings that today’s middle aged groups are heading for a poorer retirement than current older citizens.  However, the headlines fail to reflect that much of the reason for this is due to lower savings rates.  Younger generations have saved less and borrowed more than those in or just reaching retirement.  Money spent today will not be there to live on tomorrow, so it should not come as a surprise that their future income and wealth prospects are lower than those who saved more.

Despite higher incomes than previous generations:  Indeed, the report’s findings are even more damning, since they show that those now around their forties actually had much larger incomes than previous generations from which to set aside savings in their early adult years, but they chose not to.  Savings rates declined significantly from the late 1990s as the 1960s and 1970s cohorts failed to take advantage of years of rising income.  By contrast, older generations were more inclined to put money away for the future and avoid too much debt, rather than just live for now.

Earnings growth will recover and today’s forty-somethings have time to improve their position:  Another reason for the failure of middle-aged incomes to keep up with those of people near or newly retiring is the lack of earnings growth in the economy in the past ten years.  Obviously,  periods of economic recession (following the 2000 dot com crash and the 2008 financial crisis) will worsen income prospects, however this is not necessarily a permanent phenomenon.  Earnings will recover at some stage over the next twenty or so years before today’s forty-somethings reach pension age.

Inheritance cannot be relied on due to rising care costs:  In addition to this, the study seems to imply that those who are middle aged now will only be well off in retirement if they inherit wealth from older generations, while those without an inheritance are doomed to be less well off than current cohorts of pensioners.  This analysis is open to question.  In particular, many of today’s older generations will need to spend much of their wealth on long-term care, leaving little for their offspring.

People will not necessarily retire in future as they do now:  In addition, the study implicitly assumes that people will retire around the same age as today’s pensioners.  However, working longer is another solution to this situation.  If today’s younger cohorts plan to keep working later than previous generations, preferably on a part-time basis, they could even end up better off than their parents who stopped work at younger ages.

Early retirement was retrograde step for society as life expectancy increased:  Only a minority of today’s pensioners actually have good final salary pensions.  The majority of pensioners rely heavily on the state pension, which will not provide for a lavish lifestyle.  Those who retired early, despite having potentially several decades of life ahead of them, or who have been forced to retire before the abolition of the default retirement age, will have lost opportunities to earn more money.  This represent a waste of resources for society as a whole.

Still time to save more and plan to work longer – can end up better off than parents:  Even though their private pensions may not be as secure as final salary schemes, today’s younger generations still have time to do more saving and plan to keep earning, to ensure themselves a better later life lifestyle.  It is a question of changing expectations. Work on a part-time basis, as a phase of life after a full time career, can generate higher standards of living for future generations.  The more people who keep working in later life, the better the long-term economic outlook.  The idea of ‘early retirement’s is not something to aspire to, and is likely to lead to later life poverty as life expectancy rises.

Challenges and opportunities of inter-generational comparisons – learning the right lessons: The IFS study demonstrates both the challenge and the opportunity of encouraging more saving, less borrowing and longer working lives.  It is in all our interests to learn the right lessons from this research.  It is not doom and gloom, nor does it mean younger people are inevitably destined to be poorer than their parents.  It is a wake-up call for a new life plan, with a renewed appreciation of the virtues of saving and working more once the economy picks up, as I expect it will next year.

December 17, 2013   No Comments

Rising state pension age is not a penalty on the young

Lifesticks 2013

5 December 2013

  • Rising state pension age is not a penalty on the young – it’s an opportunity to embrace a new type of retirement
  •  Retirement needs to change – it is not an aspiration to live on a state pension for over 30 years!

There is much angst this morning about the Chancellor’s suggestion of increasing state pension ages for younger generations.  Quite frankly, the concerns seem based on out of date ideas about the nature of state pensions and retirement.  Ever-increasing numbers of years in retirement living on ever-decreasing state pensions is not an appealing prospect.

Rising state pension age should not be considered a penalty on the young.  It is an opportunity to embrace the benefits of all the advances in medical and work practices which are enabling most of us to have a longer, fitter working life.

Later retirement is a realistic response to the great news that people are living longer, healthier lives and that retirement is not all it is cracked up to be.  Romantic notions of retirement being a wonderful period of long holidays, lazy days and playing golf are simply not realistic.  With just a state pension and a small amount of private savings, retirement is often a question of struggling to make ends meet.

State pension age rises should have been introduced much earlier than now, but we have been through a period of unrealistic expectations which even led people to believe that ‘early retirement’ was something to aspire to.  This is totally unsustainable.

The state pension age was set at 65 in the 1940s.  At that time, average life expectancy for men was around age 67 and most people left school at age 15 or 16.  By the time they reached age 65, they had worked for around 50 years and their health was severely impaired.  Since then, society has changed.  The majority of people start work later – at age 18 or 21.  People now live well with health issues they used to be disabled by, or even die of.  That offers much better opportunities to embrace the new working life realities.

The diagram shows the changes over time in the proportion of people’s lives spent working and not working.  In the 1950s, people would have spent about one third of their life not working and two-thirds working.  Over the years, that has changed as people stay in education longer and live longer in retirement, so that closer to half their life is spent not working.  As life expectancy grows and more young people start working later, if people do not work longer, the proportion of their life spent working will continue to fall.  This is a waste of resources.

We need to rethink retirement altogether.  Most people could benefit from a period of part-time work in later life, as retirement

becomes more a process, rather than a one-off event.  Suddenly stopping work altogether is not healthy, whereas working longer part-time offers the chance for a much better work-life balance and more money to spend in our later years.  This is a whole new phase of life that is a direct benefit from all the advances that have been made in medicine and work.

The state pension age is not necessarily the same thing as a ‘retirement age’.  The state pension itself is not going to be sufficient for a decent lifestyle.  It will pay around £7,000 a year – hardly enough to live on comfortably.  This means people will need to supplement the state pension with other income.  That could be from private pensions, other savings or continuing at work part-time.  A rising state pension age is merely a signal that people are considered to have reached an age where the state may need to support them because they can no longer work productively.  That is not something to aspire to though.  Most people will want to have more income and a period of part time work, after full time work, can offer a much better lifestyle than stopping work altogether and trying to live for many more years on state and private pensions.

By working longer, people will have more years over which they can earn money and save more, as well as being productive in the economy.  Already over a million people are working beyond age 65.  This is good news.  It offers people a much better later life lifestyle, with more money coming in and, if working part-time, more leisure time too.  Those who have retired early often miss work, not just because of the money but also they miss the social interaction and feelings of respect and usefulness.

Of course, some people will be unable to work longer, either because they are not well, or because the nature of the work they do is too physically demanding at later ages.  This does not mean that the state pension age must stay static.  It suggests that we need to find ways of helping people retrain in later life, to be able to work without as much physical strain.

December 5, 2013   1 Comment