Once upon a time, reaching retirement age was a fairly cut and dry situation. Once men hit 65 or women turned 60 they could turn their back on the world of work for good, should they wish, and embark on a few decades of well-earned rest and relaxation. But, that's no longer the case – not only is the Government slowly increasing state pension age for all concerned, but they're actively encouraging people to work even longer…
The Department for Work and Pensions has announced its intention to increase the average retirement age by six months each year. This, they say, would be a "meaningful change", and would reflect the UK's ageing population – the number of over-65s is expected to rise by 51% in the next 20 years, while those aged 85+ could double by 2030, and this could put huge pressure on healthcare and mean extra bills for taxpayers.
Delaying retirement could therefore help reduce these long-term healthcare costs, as well as state pension costs (if people work longer, they won't need to access their state pension so soon), and could have financial benefits for workers, too, as it would help them increase their pension and therefore their retirement income in later life.
Currently, the average retirement age is 64.7 for men and 63.1 for women, with women rapidly catching men up in the last few years. The Government has already implemented a timetable to increase state pension age, with women's scheduled to be the same as men's (65) by November 2018. From December 2018, however, the state pension age for both men and women will start to increase – it's set to reach 66 by 2020, 67 by 2028 and 68 by 2046.
However, this isn't set in stone and will be subject to review, and in December last year, the Government announced that additional factors, such as life expectancy, will be added into the equation. Changes to state pension age could be brought forward as a result, and in principle – but not currently in legislature – state pension age could rise to 69 by the late-2040s.
The new announcement, however, refers to average retirement age rather than state pension age, and it hopes to increase the average age at which people retire by their own volition. In other words, it isn't a legal requirement, but it's hoped that by encouraging people to stay in work longer, the average retirement age will creep up.
Would you be willing to delay retirement gratification? The thought of staying in work longer may not be all that appealing, but it could be hugely beneficial in the long run. Pensions minister Steve Webb admitted that the ambition to increase average retirement age by six months a year was ambitious, but said that "if someone works an extra year, they can add 10% to their pension for life. What we are doing is catching up with decades of longer living".
The chance to add such a large amount to your pension for only an extra year in the workplace could seem too good an opportunity to pass up. That amount of extra retirement income could make the world of difference, and with all of us living longer, it's important to be prepared for the extra cash injection that'll be necessary.
Not only would the long-term financial gain largely outweigh the sacrifice of delaying retirement, but those that thrive on routine and strive to stay active may willingly stay in work that bit longer. The fear of getting bored could lead them to actively choose to keep working, and there's the social aspect to consider, too.
But, if you really don't want to stay in work for any loner than you have to, you need to start preparing now. Contributing to your workplace pension should be at the top of the agenda – your employer is required to make contributions too, so by failing to be enrolled in a scheme, you're effectively missing out on free cash from your workplace.
The tax benefits only add to the reasons you should have a workplace pension, but make sure you consider other savings avenues, too. Always utilise as much of your ISA allowance as you can – and if you've got an appetite for risk, consider stocks & shares versions to maximise your potential for returns – and if you stick to your savings habit, you could build up a sizeable pot that can be transformed into a decent retirement income when the time comes. That way, no matter when you choose to retire, you can be confident you're covered.
Read our retirement guides
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