The government should plan for a labour force of 80 -year-olds and accelerate the rate of pension age rises, according to the World Economic Forum.
Rhe Geneva-based organisation predicted a quadrupling of the current savings gap of US$8trn (£6.2trn) to US$33tn (£25.6trn) by 2050 if urgent action was not taken to tackle the challenges of an ageing population.
In its report which compared the global pensions crisis with the threat of climate change, the WEF highlighted the UK as one of a number of countries with a “pensions time-bomb”.
“The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change,” Michael Drexler, head of financial and infrastructure systems with the World Economic Forum, told FTAdviser's sister paper the Financial Times.
According to the WEF ageing populations, falling birth rates and gaps in access to pensions were the main sources of the widening “pension gap”, defined as the shortfall in money needed for a retiree to keep their income at 70 per cent of pre-retirement levels.
To alleviate a looming pensions crisis, the WEF recommended a retirement age of 70 become the norm by 2050 in countries where future generations have life expectancies of more than 100, such as the UK.
“Policymakers do need to be thinking now about how to integrate 75 and even 80 year olds in the workplace,” Mr Drexler said.
Mr Drexler said a manifesto proposal by Labour to scrap the pension age rise to 67 by 2028 was “probably not a good idea”.
In its report, the WEF estimated the world’s six largest pension systems, including the UK, US, Japan and Australia, will jointly face a retirement funding gap by 2050 of $224trn (£174trn), with the biggest gap in the US. The organisation urged global policymakers to improve financial literacy, and to increase savings levels and access to pensions among the population.
The WEF also said the UK’s lifetime allowance, which caps tax relief on pension contributions at £1m, should be scrapped because it was sending the “wrong signal” that there is only so much you should contribute to your pension.
Backing up the World Economic Forum’s findings, a Royal London policy paper The Death of Retirement said today’s new worker would need to work until they were 77 based on contributions at the statutory minimum of 8 per cent to fully replicate the kind of pension which would have been enjoyed by someone with decent service in a final salary scheme.
Even disregarding the valuable benefits of inflation-protection and provision for spouses, the worker would need to work until 73.
Steve Webb, director of policy at Royal London said: “Given how long it takes to consult on these things, to legislate and then for employers and providers to implement change, there is a risk of going many years post 2019 with no further progress.
"The risk is that because auto-enrolment relies on inertia, people will complacently assume that their contribution rates have been set at the 'right' level and will get a nasty shock when they cannot afford to retire."
stephanie.hawthorne@ft.com
