A recent report by Continuous Mortality Investigation shows that life expectancy at retirement in the UK has fallen. The report estimates that a man aged 65 in 2022 has a life expectancy about two years shorter than that of his counterpart from 2012. But what does this mean for retirement planning?
Life expectancy vs state pension age
The current state pension age is 66 for men and women, and this will rise to 67 between 2026 and 2028. There will also be a government review within the next two years to reconsider raising that age to 68.
In this review, the government will take into account the long-term impact of recent societal challenges, including the Covid pandemic, cost-of-living crisis and inflationary pressures. Each of these factors can impact on life expectancy, labour markets and public finances, potentially skewing the data. The hope is that by postponing the review for two years, the picture of life expectancy in the UK as a whole should be clearer and a decision can be made on whether or not to raise the state pension age further.
The future of retirement
If the data over the next two years suggests that life expectancy has indeed shortened but state pension remains at 67 or is even raised to 68, there are obvious repercussions for retirement planning.
At a society level, a retirement window that shrinks at both ends means a population working longer with less time to enjoy retirement. At an individual level, everyone has a different personal situation, but this may sharpen the thinking of those looking to retire in the next 5-10 years who may want to reconsider their target retirement age. In fact, with any change to state pension age it’s wise to reassess your own retirement plan.
For younger generations, the recommendations would remain the same in that an early, purposeful start to saving for their retirement will be vital if they are to successfully prepare for a comfortable later life.
Diversity in retirement plans
Even if life expectancy at retirement continues to fall, a number of recent announcements in the Spring Budget on pensions could help to make a positive impact on saving for retirement.
The annual allowance increase from £40,000 to £60,000 a year will permit greater levels of pension contribution for working-aged people. Meanwhile, the abolition of the lifetime allowance means that members of pension schemes will no longer be capped in terms of the maximum benefit they can accrue over their lifetime, without paying tax penalties.
Ways to prepare
The deadline for topping up any gaps in your national insurance contributions has also been extended to 31st July. This gives working aged people more time to add any missing national insurance in the previous six tax years (2017-2023). Depending on your individual situation, if you have a significant amount of missed NI contributions, topping up could boost your state pension by thousands of pounds.
Whatever the outcome of the government’s review in two years, having a diverse portfolio of investments to support your state pension is advised. To check your average life expectancy, the ONS offers a probability calculator based on age and gender.
If you would like to speak with our team of financial planners about your retirement plans, please get in touch.