Should everyone really get their pension at the same time?

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Iona Bain

Many youngsters today will have no choice but to work longer and retire later. That will be the inevitable upshot of this year’s Autumn Statement, which revealed plans to place the state pension age under constant review amid curbs on government spending and predictions of rising life expectancy over the next four decades.

But just how many Scots will live long enough to see the benefit of their pension contributions? That is the question on SNP and Labour lips, as they wonder whether Westminster’s push-back on the state retirement age will cause workers in poor health to lose out.

This crucial turning point in our lives has already been raised to the age of 66 from 2020 and 67 from 2036, allowing the Treasury to snip £100 billion off the welfare budget over the next 23 years.

However, a new principle underpinning future reviews of the state pension age will determine that workers must spend no more than one third of their adult life receiving this state handout.

The Office for National Statistics estimates that life expectancy will reach 83.4 years for men and 87 years for women by 2035.

So the warning came loud and clear from George Osborne; expect to see a new state pension age of 68 by the mid-2030s, ten years earlier than previously proposed, with a further rise to 69 expected by the late 2040s.

That one-size-fits-all approach has been branded “regressive and unfair” by one Labour peer, who joined calls for the state pension to be doled out according to region and even occupation.

In a recent debate on the Pensions Bill in the House of Lords, Baroness Patricia Hollis of Heigham said: “Every year that we raise the state pension age is deeply unfair on those who have had hard lives. They start work five years earlier than those who enjoy higher education, and they can expect 10 to 15 years less of overall life expectancy and of healthy life expectancy. By raising the state retirement age, we eat into and reduce their few healthy retirement years even further, all to subsidise the pensions of people such as me.”

Her comments were echoed by Roderick Campbell, the SNP MSP for North East Fife, who described the move towards a state pension age of 67 as “too rapid”.

He added: “The Chancellor has shown he is clearly unaware of the social disparities not just throughout the UK, but in Scotland itself. With lower life expectancy in Scotland, the Chancellor will have more people working for longer, but being able to reclaim very little of their pension.”

Mr Campbell also pointed to the Scottish Government’s recently published blueprint for independence, which could pave the way for an autonomous commission on a tailored pension age for Scotland.

Would that make retiring in an independent Scotland a “more appealing prospect” than in the rest of the country? Chris Leitch, head of employment at Scottish law firm Tods Murray Solicitors, seems to think so. But should Scottish independence fail to materialise, Mr Leitch urged workers to make their own plans if they wish to get the most out of their retirement – however long it lasts.

He added: “The Chancellor’s Autumn Statement means that individuals who want to retire earlier than the state retiring age will have to make their own pension provisions and for longer. This has always been true for most, given the generally low levels of state pensions anyway.”

The independent pensions consultant Ros Altman also warned that rises in the state pension age will prove to be unavoidable, but offered hard-pressed workers of the future a silver lining. “Given that work starts at later ages than in the past too, that is not such a bad thing. When work started at age 15, people had worked for 50 years by age 65. For those who go on to higher education, starting work at age 21 or 22 means they will have worked for 43 or 44 years by age 65.”

Ailing savers who need to make the most of their retirement should investigate enhanced annuities if they have saved into a defined contribution pension.

This product will offer a far better annual income than a standard annuity for those who need all the benefits they can get.

Sadly, even those who avail themselves of the so-called “open market option” and shop around to get the best deal could be navigating a minefield, as an exposé by the Financial Services Consumer Panel recently found. Be aware that going down the “non-advised route”, i.e. calling upon your insurance company or an annuity broker to help you, comes with an unclear cost and you will not be able to claim compensation or switch to another annuity should you make the wrong choice. If in doubt, consult an independent financial adviser, who is accountable, can lay out the charges and track down the best annuity for you.

A shorter version of this article appeared in the Herald last month – click here to read more:

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