Retirement age should be raised faster and higher, IoD
Structure of state pension system needs dramatic overhaul to accommodate lengthening lifespans.
The UK government should raise the retirement age to 70 “sooner rather than later” and overhaul the structure and regulation of pensions, the Institute of Directors has argued.
In its Roadmap for retirement reform 2012, the IoD argues that increasing longevity is the “elephant in the room” for the pensions industry and that the current plan for increasing retirement age is not strong enough.
Instead of a plan culminating in a state pension age of 68 in 2046, the IoD calls for a pension age of 68 in 2032, 69 in 2038 and 70 in 2044.
The paper was written by Malcolm Small, senior adviser for pensions policy at the IoD.
Mr Small said: “No-one wants to be told they must wait longer before being eligible for a state pension, but we believe the huge increases in longevity since the last World War, when the state pension system as we currently understand it was designed, mean that the very sustainability of the state pension demands it.
“We need to stop pretending to people that state or private pension architectures were ever designed to support a potential 30-year retirement from an effective 35-year working life.”
Mr Small also argues for a flat-rate, universal basic state pension, the abolition of means-tested retirement income benefits and government consideration of a formal savings policy for the UK.
Finally, he calls for a radical reform and simplification of pensions architecture. Even if the government does not overhaul the pensions system Mr Small argues that people will change their behaviour anyway.
“We expect new retirement funding systems to emerge in coming years which will have nothing to do with a pension as currently understood, but will aim to do the same job.”
Otto Thoresen, director general of the Association of British Insurers, said the new paper highlights the challenges faced by both savers and the industry.
He said: “We are all aware people are not saving enough for retirement and too many people are not saving at all. Auto-enrolment is an important opportunity to change that.
“Isas also have a role to play in encouraging long-term savings and their ease of access is attractive, particularly in economically uncertain times.
“However, Isas do not have the employer contributions and tax benefits that pensions offer and their charges tend to be higher than modern workplace pensions.
“Savings policy should be thought about in the round, but as the report acknowledges, the primary challenge now is to deliver automatic enrolment which will bring millions more people into pension savings.”