New graduates will work to age 71

GraduatesChris Ison/PA Wire/Press Association Images

Reports today suggest that new graduates won't receive their state pension until the age of 71. The Guardian quotes research from Club Vita, which also shows that a child born today will have to wait until the age of 74 to draw their state pension.

However, they are missing the point: this was entirely to be expected, and constitutes no great hardship.

Rising pension age

The research drew on the Budget comments about linking state pension age to longevity. The rises in state pension age have already been accelerated by the current government, so we will see a retirement age of 67 by 2028.

In the Budget, George Osborne confirmed that the state pension age will then be linked to longevity, so that it can rise at a phenomenal pace without becoming a political minefield. Given that life expectancy is rising by 2.5 years every decade, it means further acceleration is highly likely.

Club Vita's Steven Baxter told The Guardian: "Our analysis suggests that the state pension age will need to rise to 68 and over for those currently aged below 50. This would accelerate the current plans, bringing forward the rise [to 68] from 2046 to around 2030."

No surprise

It sounds dramatic, but the experts have been sounding this particular alarm for years. Tom McPhail, head of pensions research for Hargreaves Lansdown says it's inevitable. He highlights that longevity has changed the picture dramatically. The Department of Work and Pensions estimates that 10 million people alive today in the UK will live to the age of 100, so pension age was always going to have to change to take account of this. "Pensions have to be paid for, so it is not sustainable to expect to retire in your late 60s if you are going to live 20 or 30 years more."

He adds that the proportion of the population over the age of 65 is currently 16%, and by the middle of the century it will be 24%: "The ratio of taxpayers to pensioners is getting substantially less robust. Having people living longer and retiring at the same age isn't a problem as long as you have a rapidly expanding pool of taxpayers to pay for it. We haven't through birth rates, so the only alternative is massive immigration, and that has its own challenges."


And while it may seem unfair, McPhail points out that we're not being robbed of years of retirement: "In the 1980s a 65 year old man could expect to spend 14 years in retirement. Today's graduates retiring at 71 can expect 15-20 years in retirement, so not that much has changed."

The experts also highlight that we don't have to be slaves to the state pension age if we start planning for ourselves early and save enough. McPhail suggests that starting a pension for a child (if you can afford it) will make a dramatic difference to their life, as the compound interest over the added years will transform their pension expectations.

For those further down the track, saving as much as possible as early as possible, taking advantage of any pension on offer from your employer, and not opting out when auto-enrolment kicks in, may mean you can beat the state to the punch and have a few more years with your feet up before you get too old to enjoy it.
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