Latest figures showing that in the last 30 years there has been a five-fold increase in the number of people living to age 100 in England and Wales further highlight the challenge of how we pay for our increasing retirement years.
There are now more people in the UK aged over 60 than there are under 18, with the average life expectancy for a person aged 65 expected to rise to age 88 for a woman and 86 for a man by the year 2025. Combine this with the UK’s chronic culture of under-saving and nothing short of a revolution is needed to tackle the challenge.
And a revolution is happening with auto-enrolment leading the way. With 1.6 million workers having been auto enrolled into a workplace pensions in its first year, and with the number of people opting out much lower than originally expected, auto-enrolment has certainly got off to a good start. But it is only a start and must be seen as work in progress. The real challenge comes now as auto-enrolment is rolled out to the thousands of medium and small firms. Only once we reach the deadline for enrolling all eligible workers in February 2018 will we be able to fully judge its impact.
It is not just a case of getting more people into the savings habit, but to do more to ensure that people are saving as much as they can for retirement. But with family budgets continuing to be squeezed, and with savers facing an era of low interest rates, how can people be incentivised and encouraged to save more? First, people need confidence in the pensions industry to deliver clear, value for money pensions. With pensions charges at their lowest ever level and industry initiatives giving people approaching retirement more help to ensure they make the right pensions choice, the industry continues to reform to deliver what consumers need and expect.
We believe now is the right time to ask if our pensions tax relief system is as effective as it can be in encouraging more people to save. This is why we have kicked off a debate with politicians, age and consumer groups about the changes that could be made to greater incentivise saving. Whatever the solution, any changes must:
- result in a simpler, fairer system
- be straightforward to implement
- encourage more people to save, especially low to middle earners
- command cross party support, and demonstrate good value for money to the Government
Twenty years from now the number of people in the UK aged over 65 is expected to have risen by nearly 50% to over 16 million. When it comes to pensions, evolution is not the answer; only a revolution in how we encourage people to save for retirement can ensure that we have both a pensions system and a savings culture that meets the needs of our ageing society.