Britain’s ageing population — what might it mean for your retirement planning?
Last month, the Office for National Statistics (ONS) produced a detailed report on the ageing population in the UK. It won’t come as a surprise that we’re all living longer, but the extent of the shift is striking. According to the report, 24% of Britons will be over 65 by 2042 — up from 18% from the last reported figures in 2016.
And the implications of Britain’s ageing population could have some considerable consequences when it comes to our working life and finances.
With almost a quarter of Britons to be classified as ‘pensioners’ in the near future, that’s a lot of extra people who may well be out of work and on a state pension — putting further strain on already stretched public resources.
The real kicker, though, is what these new findings could mean for how you choose to plan and save for your retirement. If one thing’s clear, putting all your eggs in the state’s basket isn’t the way to do it.
Moving away from a nanny state
According to the findings, people are not only living longer, but are also working later into life than ever before.
As it stands, 21.2% of people between 65 and 69 continue to work beyond the state pension age (65). By 2050, it’s expected to hit 41%. And by 2067, 51% of those over 65 will likely still be working. Considering the figure stood at only 10% in 1992, it’s a huge increase.
Of course, attitudes to work are changing. More and more of us enjoy the prospect of working later in our lives (forget 40 – some now say life begins at 60!).
But it seems beyond doubt that many of those fated to work longer will do so out of necessity, rather than choice — so as to grow a pension pot that’s big enough to sustain a longer life, with less support from the state.
Which leads nicely onto the next point: the amount needed to fund the state pension is going to increase significantly with more of the population classed as ‘pensioners’.
In 2017, state pension spending amounted to nearly £92 billion (5.1% of GDP) — up from £26 billion in 1992 (3.6% of GDP). By 2042, it’s set to hit 6.1% of GDP.
The ONS hasn’t been quiet about wanting to raise the state pension age sooner than planned, either. It’s set to increase to 68 by 2047, but the ONS has urged this to be brought forward by a full seven years — to 2039 instead — to help relieve some of the strain on public spending.
If the change goes ahead, it means there’d be 23 fewer pensioners for every 1,000 people of working age.
The true cost of care
Another important point outlined in the report is that while life expectancy is steadily rising, healthy life expectancy isn’t necessarily following suit.
According to medical journal, The Lancet, 2.8 million people over the age of 65 are expected to require nursing and social care by just 2025. Fast forward another 25 years and the figure will no doubt be much higher.
Although it’s not something most of us like to think about, and have an even harder time talking about, our health is going to inevitably decline as we get older. And the reality is that many more of us will spend an increased number of our later years in poorer health than several decades ago.
Another report revealed that of the over 65s who retired early (i.e. before 65), six in ten did so because of reasons outside of their control — 21% being due to illness.
Start saving today
So with an almost inevitable increase in pressure on our already stretched public services over the next 30 years, what does this all mean for everyday household finances — and, more specifically, your retirement planning?
In short, relying on the state to support your retirement is not a safe bet. If the state pension age continues to rise, more people will have to continue working for longer— or rely on their own savings to tide them over until they get a helping hand from the government. If they get one at all…
And most importantly, having enough provisions of your own to fund long-term care is vital. If you or a loved one receive care, you’ll be required to pay the bulk of the costs if you’re able to — this could mean losing your home to foot the bill as, in some circumstance, your estate is included in your financial assessment.
Considering that 43% of the population currently don’t know how much they’ll need to retire, including the true cost of care, early planning and saving for retirement has never been so important.
How much will you need?
If you’re living for longer and won’t be able to claim the state pension until your late 60s, just how big might your own retirement fund need to be before you can comfortably hang up your boots?
That all depends on how much income you’re going to need every year, and for how long. It’s worth putting some thought into the sorts of things that’ll drive your spend in retirement — things like travelling more, eating out, hobbies etc. and any big upcoming expenses you might be saving for like a child’s wedding or a second home in the sun.
The Money Advice Service has some useful guidance. It suggests you’ll need at least half of your current income in retirement to maintain your current lifestyle – and more, if your current earnings are lower.
Putting a definitive number on the unknown isn’t always easy. But flying blind when it comes to how much your retirement might cost could have some far-reaching consequences. Don't leave it to chance.
Worried that you’re not on track for retirement – or unsure as to how much you’ll need? Download our guide – ‘How much will I Need to Retire’ – to find out more about how to plan and save for that all-important milestone.