If Britain wants to keep pension costs down, the retirement age has to rise faster and people should expect to work into the 80s, says a new report.
Forecasting a black hole in pensions widening from today’s £8 trillion to £25 trillion by 2050, think tank the World Economic Forum pinpointed Britain as one of eight countries facing a pensions time-bomb.
The pensions gap is the difference between how much retirement savers receive to maintain 70% of their final salary when they stop working and the income from personal, workplace and state pensions they have to meet the bill.
The gap expands as pension income is inadequate to pay the retired.
“The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change,” the forum’s head of financial and infrastructure systems Michael Drexler said.
“We must address it now or accept that its adverse consequences will haunt future generations, putting an impossible strain on our children and grandchildren.”
The forum suggests retirement age should reach at least 70 by 2050 in countries where people have a future life expectancy of 100 years or more.
The list of countries includes the USA, UK, Japan, Canada, Australia and the Netherlands.
The report We’ll Live to 100 – How Can We Afford It? urges policymakers in these countries to move quickly to avoid an impending pensions disaster for the next generation.
“If increases in life expectancy were matched by corresponding increases in the retirement age, the challenge would be less acute,” said Drexler.
Scrap savings limits
“Policymakers do need to be thinking now about how to integrate 75 and even 80 year olds in the workplace.
The forum also recommended the £1 million UK lifetime allowance should be scrapped for sending the wrong signal to savers about setting a limit on retirement savings.
In Britain, pension savers receive tax relief on lifetime contributions of up to £1 million, but face tax penalties for saving more than the cap.
The forum cites ageing populations, falling birth rates and gaps in access to pensions as the main sources of the pension gap.