Experts say the increase in State Pension Age announced by Chancellor George Osborne in his Autumn Statement yesterday will not be the last and millions of younger people should prepare to work until they are 70 or even 75.
No wonder public sector workers are striking today to protect taxpayer-subsidised schemes that enable many to retire two decades earlier than what looks like the new norm for those in the private sector. Mr Osborne's proposals yesterday to end national pay bargaining and cut jobs in the public sector can only have thrown petrol on the fire of their indignation.
Ed Wilson, a director at PricewaterhouseCoopers (PwC), said: “The Government brought forward the increase in the state pension age to age 67 by nearly 10 years so that it will be place by 2026. There is a clear direction of travel that means that many of today’s younger employees can expect to be working well into their 70s.
“People hoping to retire at a particular age are having to revise their plans and are facing a stark choice between working longer, saving more or retiring poorer. Based on the principle the Government had previously set out of increasing State Pension age in line with improvements in longevity, we calculate that the State Pension age could be set to rise to age 70 by 2050.”
That would catch everyone aged less than 31 today. The increase in State pension age to 67 will affect everyone born after 1960. None of these changes should come as a surprise, as increased pension ages have been predicted in this space and elsewhere many times over the years.
State pensions are a form of Ponzi scheme where the funds available are insufficient to honour promises issued and so new payments into the fund are urgently required to avoid collapse. National Insurance Contributions (NICs) collected this week are used to pay next week’s State pensions.
Thank heavens I contracted out of the State Earnings Related Pension Scheme (SERPS) – now known as the State Second Pension (S2P) – more than 20 years ago and used the rebated NICs to build up self invested personal pensions (SIPPs), from which I took tax-free profits two years ago. That provided nearly half the cash I used to pay off my mortgage last December.
Never mind the actuarial complexities about rising life expectancy and falling investment returns. Outside the public sector bubble, savers face a stark but simple choice. Would you rather have an ill-defined share in an unfunded scheme or a pot of private property with your name on it? Do you want a DIY pension or to put your faith in politicians?
Joanne Segars, chief executive of the National Association of Pension Funds emphasised the inevitability of pension age increases: “Longer lives do mean more time at work, so it is understandable that the rise to 67 will start earlier. The Government has learned from its recent mistake and is giving people sufficient notice this time.”
John Richardson at independent financial advisers Towry urged people to save for themselves: “Ever increasing longevity mean this is unlikely to be the end of this upward trend. It is therefore essential that individuals ensure they make adequate private pension provision to meet their future retirement plans.”
Even so, there must be plenty of people aged 51 or less now that dutifully paid their NICs and other taxes for decades who now feel swizzed by a Government moving the goal posts against them; not to mention those aged 31 or less who will have to wait even longer.
This is pensions apartheid or the gap between a public sector clinging to contractual rights the country can no longer afford and private sector pensions in crisis. Today's strike will highlight these problems but perhaps not in a way the trade unions intend.
Just a few years ago, I asked who was running the biggest Ponzi scheme; Bernard Madoff or the British Government? Well, we can all see the answer now. Without wishing to be unduly gloomy, it is only fair to point out that six years ago I reported the president of the Institute of Actuaries predicting that new graduates will have to work until 75.
