The latest data from the Office for National Statistics (ONS) has revealed the UK’s population continues to experience a rise in life expectancy.
In England and Wales, for the period 2007 to 2011, the most common age at death was 85.6 years for men and 88.3 years for women, representing an increase of 8.2 years and 3.8 years respectively compared with the period 1982 to 1986.
The significant leap in life expectancies since the 1980s, due mainly to medical advances and healthier lifestyles, means millions of us will be spending at least two decades of our lives in retirement. These figures offer a reminder of the need for financial advisers, regulators, government and consumers to take an increasingly long-term view on the effect of their decisions.
The ONS said the increases were important to consider ‘for pension provision now and in the long term, and for health and social care need’.
Sustainable spending
Consumers need more help understanding the implications of their spending and saving habits on the sustainability of income in later life. There is an ongoing role for advisers to play, but it is equally important for regulators and the government to develop an environment in which consumers can feel confident about their long-term financial futures.
In March, a month after the release of the ONS figures, former director-general of the Confederation of British Industry, John Cridland, published his final independent review of the state pension age report.
The report exposes the mismatch between the need to encourage people to plan and save for a longer retirement, and the government’s short-term pension policies such as the pension freedoms, which encourage people to live for today.
The pension freedoms were broadly welcomed but they conflict with the principle of providing an income in retirement. Latest research shows more than 500,000 people have cashed in a total of £9.2 billion from their pension pots in the two years since the pension freedom rules were launched in April 2015.
New cars, holidays and home improvements were the most popular expenditure items, from funds that had previously been set aside for retirement.
The Cridland report makes for a sobering read, particularly in relation to increases in the state pension age. But it includes some pragmatic and sensible recommendations the government should implement.
The report proposes a link between the pension age and life expectancy, which has already proved an effective measure in countries such as Sweden, Norway and Germany.
Retirement plan
The report calls for the unsustainable triple lock to be scrapped and replaced with an earnings-linked solution, which is a measure that may not be popular, but is required given the current state of affairs.
A midlife MOT has the strong support of the Personal Finance Society, having called for a similar scheme for many years. As part of our formal response to the Financial Conduct Authority’s public financial guidance review, published in December, we supported the idea of a financial MOT for those in their 50s.
A midlife MOT would help people plan for their later lives, particularly vulnerable people, and we have written to the chancellor to seek the government’s support for this initiative.
In the letter, we explain why urgent action is needed to mitigate the risk of mass poverty in later life. We urge the government to seriously consider the creation of an independent pension commission, tasked with developing sustainable measures addressing the issues facing the public in retirement.
Successive governments have failed to address a state pension train crash waiting to happen, and it is time for the government to act swiftly and decisively in response to the recommendations of the Cridland report.
Keith Richards is chief executive of the Personal Finance Society.