One in four people currently under age 16 will live to at least 100, according to figures published by the Department of Work and Pensions. Pensions minister Steve Webb said the figures highlight that people could be spending a third of their lives in retirement, underlining the need to reform the state pension system.
Advisers say the figures underline the huge challenges to employers and employees, but some have argued that the recent removal of the default retirement age may lead to some believing they can put off saving and rely on delaying retirement.
Marc Hommel, pensions partner at PwC, says: “Rising longevity is the biggest contributor to ballooning pension costs for employers and is making traditional defined benefit schemes unaffordable. At the same time, the amounts being saved by and for most people into defined contribution pension accounts are wholly inadequate to provide for a secure retirement. The only solution appears to be that most of us will need to work later into our lives and try to stay fit and healthy to enjoy our longevity.”
“With the end of the default employment retirement age, and spiralling costs of pension provision due to people living longer, employers need to re-evaluate their policies around retirement and the role of retirement savings in the employment deal. Future employees will have highly diverse needs around their retirement and what they need or want to do with their retirement savings. The more flexibility that employers can give, the better appreciated and more valued will be their retirement savings spend.”
Joseph Lu, longevity expert at Legal & General says: “It is life expectancy at older ages where there has been the most dramatic rise. Over the last 10 years, life expectancy at age 65 has risen by about 95 days per year for men and by 75 days per year for women. “This improvement in life expectancy makes it extremely difficult for an individual to estimate how long they can expect to live and explains why so many of us still greatly underestimate how long that will be. Research has shown that men between the ages of 60 and 69 tend to underestimate how long they will live by nearly 3 years and women by nearly 5 years. If they were to plan their retirement on this basis then many run a high risk of outliving their savings.
“More people will be faced with the difficult challenge of calculating their expected longevity to ensure they do have sufficient saving in retirement particularly if they’ve chosen not to arrange an pension annuity. Arranging an annuity would ensure that an income continues to be paid, no matter how long the person might live, so great insurance against the cost of living longer.”
Fraser Smart, managing director of Buck Consultants says: “These figures from the DWP, revealing that one in six of the population will live to be 100, were meant as a rallying cry for younger people to start planning for retirement. In reality however, the increase in longevity could present a double edged sword scenario for the long-running battle to persuade those at the start of their careers to consider long-term saving.
“While it ought to demonstrate that people can expect to live longer in retirement and therefore impose a greater urgency and need to accumulate more funds, there is a danger that recent key legislation changes, particularly the removal of the default retirement age, will actually lead to the reverse effect. As people face significantly longer working lives, many may be convinced that they can afford to delay the process of pension saving even further.
“There is a fundamental need to develop a ’pensions-positive’ environment in the UK, and key to this will be a change in ethos among those at the start of their careers. All stakeholders throughout government and the industry must focus on demystifying the pensions landscape and educating everyone on the benefits of long-term saving, regardless of your ultimate retirement date.”