Britain's system faces the stark reality of struggling to meet the needs of an ageing population, warns Andy Briggs, the chief executive of life insurer Phoenix Group. Retirees are at risk of receiving reduced state pensions and enduring longer waiting periods for payouts, as the system grapples with its inability to cope with demographic shifts.
Navigating Ageing Challenges: State Pension Pressures Amid Demographic Shifts
Andy Briggs warns that the burden on state pensions will become unsustainable without significant improvement, emphasizing the need for citizens to bolster their personal pension savings.
Briggs, overseeing 12 million clients and £259 billion in assets at Phoenix, explained to the Telegraph, "The state pension just can’t cope in the way that it was originally designed to do.
“Effectively, state pensions are going to have to be paid later and at a lower level, and people are going to have to make greater personal provision.”
Briggs stressed the strain on the system due to significant demographic changes. In 1949, when the state pension debuted, retirement age stood at 65 for men and 60 for women.
“At that stage, life expectancy for a man was 67,” he added. “So the whole thing was designed with a life expectancy in retirement of two years.”
Today, men's retirement age has increased to 67, correlating with a life expectancy of 85 years. This demographic shift signifies an even greater strain on state pension demands.
Over the next 15 years, the UK population is poised for a significant demographic shift. Individuals aged 85 and above are projected to increase from 1.6 million to 2.6 million, comprising 3.5% of the population. By 2029, those aged 75 and older may represent one-tenth of the population, escalating to one-ninth by 2037. Furthermore, by 2037, individuals eligible for pensions could make up one-fifth of the total population.
The demographic shift will intensify pressure on pension systems to accommodate a rising number of retirees. Immigration policies may be vital for replenishing the labor force and sustaining pension funding amidst a dwindling working-age population relative to retirees. Strategic planning will be essential to ensure the long-term sustainability of pension provisions amid these demographic changes.
The situation is expected to deteriorate in the decades leading to 2050, with the global number of people over 60 projected to multiply, according to the World Health Organization. Additionally, the number of individuals over 80 years old is set to triple.
Briggs reassures that the UK's state pension age will not drastically increase by seven or eight years, alleviating strain on pension sustainability.
Research indicates a potential rise to age 71 by 2050, yet this may still fall short due to factors such as early workforce exits. These challenges highlight the imperative for a comprehensive review of pension policies to address inequalities in work, health, and savings.
As Britain transitions from defined benefit to contribution pensions, a concerning trend emerges: only one in seven individuals save adequately for post-retirement life. This generational misunderstanding poses a significant threat to the financial well-being of future retirees.
Addressing Gaps in Retirement Planning: Insights from Andy Briggs
Over a decade ago, former UK Chancellor George Osborne introduced auto-enrolment, mandating all employers to provide workplace pensions.
Briggs lauds the success of the plan: "We used to have 10 million people saving for their retirement in the UK. Now we have 20 million."
However, two significant gaps remain in the system: firstly, it does not cover the self-employed.
Approximately 5 million individuals remain entirely outside the pension system, presenting a significant challenge. Additionally, the minimum contribution rate, currently set at 8% of salary, is deemed insufficient by Andy Briggs and others. In contrast, the UK's average contribution rate hovers around 10%, significantly lower than Canada's average of 20%. Briggs advocates for raising the minimum contribution to 12%.
Secondly, Briggs emphasizes the necessity of redefining attitudes toward later years of work. As the Government's Business Champion for Older Workers, he urges individuals to consider extending their careers to ensure financial readiness for retirement.
Briggs urges individuals over 50 to take charge of retirement planning and understand their financial trajectory. Demographic shifts lead to more older workers leaving due to caregiving duties. Employers should offer flexibility to retain experienced workers. Briggs also calls for pension investment strategy reforms for better returns.