Why working to the age of 71 could be a problem: Sarah Cole

The problem is clear: the population aged 65 and over has risen rapidly. At the moment, there are around three working age adults for every person aged 65 or over. By 2050, this could fall to as little as one worker per retiree. So this either means adding enormously to the tax burden for working people, or finding other ways to increase the number of workers per retiree.

Yet there are serious doubts as to whether hiking the state pension age is the solution, because it won’t necessarily create more workers. Just because they’re not getting a state pension until later, it doesn’t ensure that people want to work for another few years – or that they can.

By the age of 70, only half of us are free of disabilities and able to work. In fact, a baby boy born in 2020 is only expected to make it to the age of 63 in good health, and a baby girl to 64, which means we’re already dragging ourselves to work, despite ill-health, even with the current state pension age. And this isn’t getting any better. In fact, the most recent healthy life expectancy figures for boys are actually lower than the previous ones.

This isn’t helped by the growing army of people who are waiting for medical treatment and are too sick to work. Figures from the Office for National Statistics show that a record 2.8 million people are signed off with long term illnesses, and another 170,000 are signed off temporarily. It doesn’t help that there are more than 6.4 million people waiting for consultant-led treatment and 1.6 million waiting for diagnosis.

It’s not just ill-health keeping us from working. In 2021, there were almost 1.2 million unpaid carers providing care for a loved one – just over 1 in 10 of the older population. For these people, hiking the state pension age would make no difference to their ability to work.

For those who can’t work, and are too young to claim a state pension, their quality of life will depend entirely on what they have been able to put aside for retirement. Those with good private pensions will be able to fall back on them. Meanwhile, those who haven’t been able to save enough will need to rely on far less generous working age benefits.

It’s worth remembering that the under-pensioned actually outnumber the pensioned: the HL Savings & Resilience Barometer shows that only 39% of people are on track for a moderate retirement income. It leaves millions more people relying on working age benefits. This would be cheaper for the government to provide than state pensions, but would also ensure millions of people spend years of their lives on very low incomes.

There are also knock-on effects for the wider family. Right now, support from grandparents is often the only thing making work pay for parents. If those grandparents are still stuck in a 9-5 to the age of 71, they can’t step in. It means fewer parents can afford to work, which means fewer workers supporting state pensioners.

And it’s not just their family that will suffer. Younger, active retirees are the glue holding plenty of communities together. Without them I know my town would struggle to run the food banks, drive people to hospital appointments, provide respite for carers at community groups and help ease loneliness for older people. All these things run on the kindness of volunteers, and if they’re too busy working until they drop, either the state will have to step in – so it won’t save the cash it expects from this move – or the most vulnerable people will go without the vital help they need.

It means we may need to look further to find a way to make state pensions more sustainable – including finding ways for more people of working age to stay in work.

Some of this will happen naturally as the generations shift. Those healthy early retirees on generous final salary schemes are going to make way for a generation on defined contribution schemes, who went without automatic enrolment for a major chunk of their careers, and are likely to struggle to afford retirement when they reach their mid-60s, let alone in the decade before.

Some of it will be down to workplaces though, which will need to adapt to be more inclusive. This includes finding ways to employ people who have additional needs throughout their life, those who have caring responsibilities, and older people. They may not be able to assume the traditional workplace and its rules will work for all the workers they need to employ.

Getting more people to work isn’t the only potential answer though. There’s the thorny issue of the pensions triple lock too, which means pensions have risen each year with inflation, wages or 2.5% - whichever is highest. This has set in stone that pensions will get increasingly generous. It has made an incredible difference in cutting pensioner poverty, but leaving the triple lock open-ended forever means that logically we’ll eventually reach a point when it’s too generous. Instead, there’s a strong argument for assessing what a fair level is for the state pension, and then increasing it with either inflation or wages, so it remains similarly generous.

This is an incredibly difficult argument to make. Millions of people rely on the state pension, and are understandably alarmed about potential changes to the rules. However, eventually, maintaining it could mean raising the state pension age to the point when you stand very little chance of ever getting a payment, and that’s not in anyone’s best interests.

This particular suggestion, to raise the state pension age well beyond the stage at which most people are fit enough to work, is unlikely to come to fruition. However, it emphasises the fact we have a problem with the affordability of state pension, and we need to solve it one way or another.

We can only hope that the eventual solution strikes a balance between fair taxes for the working, fair support for those who can work, and a fair pension for those who have earned the right to put their feet up before celebrating their 70th birthday.

Inflation

We were braced for a bump in the January inflation figures this week, so it’s a relief that inflation held at 4%. The even better news is that it’s expected to fall sharply from here. However, we can’t afford to relax, because there will still be bumps along the way, which means we may not see rate cuts until the second half of the year.

This is good news for savers, because it means savings rates over 5% remain on the table. However, it’s another blow for remortgagers, who will have to wait longer for mortgage rates to fall. For those with a remortgage on the cards, it means you can’t cross your fingers and hope for rate cuts. You need to plan based on rates remaining higher for longer, and consider how you can find a way to afford your new monthly payments.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHeadline Money Expert of the YearHargreaves Lansdown