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Financing Retirement: Policy, Challenges, Solutions

Explore the UK pensions landscape, history of retirement, global perspectives, challenges of life expectancy and healthy aging, policy implications, and responses to secure retirement. Understand macro-policy impacts with insights on tax-incentivized savings.

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Financing Retirement: Policy, Challenges, Solutions

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  1. Malcolm Small Director of Policy tax incentivised savings association “Financing Retirement – History and the Policy Agenda”

  2. What Will We Cover In This Lecture? • The Current UK Pensions Landscape • A Short History of Retirement • Some international Perspectives • Life Expectancy And Healthy Ageing: The Scale Of The Challenge in the UK • The Implications • Possible Policy Responses • Create An Understanding Of The Macro-Policy Impacts For Retirement

  3. But First, A Story About Steam Engines And A Watch…

  4. The Current Landscape in the UK • The Pension Tsunami The Forward Outlook For Generations “X” And “Y” Is Not Good Baby Boomers D.B. Schemes YOU ARE HERE Group Personal Pensions - Have A Nice Day! Generation “X”

  5. A Short History of Retirement • The idea of “retirement” is relatively recent; Bismarck • Crystallised in the UK post-war; Beveridge Report • Developed world typically has a 2 or 3 tier system – state and private • State systems typically Social Insurance or Contributory – allegedly • Typically “paygo” – sustainable?

  6. Some International Perspectives • State Retirement Benefit systems under pressure..... • Where they exist at all • Entitlement vs. Means Tested benefits • Private saving patchy across the planet • But some successes; Australia and China • Workplace pension schemes on the march in Europe, but in decline in the UK

  7. The UK Savings Landscape • Occupational Schemes Down: 2004 - 97,000 2006 - 78,000 • 4.7 Million Non-Joiners • 10 Million Plus Not Saving In A Pension • Switch To Group Personal Pension Plans: 3 Million Saving £6.7 Bn P.A. • Self Invested Personal Pensions: 500,000 Accounts, £250 Bn • But £350 Bn In Individual Savings Accounts • £400 Bn In Occupational Defined Contribution • The Pensions Market Is In Flux

  8. Life Expectancy And Healthy Ageing: The Scale Of The Problem Projected Principal Period Life Expectancy (ONS) Is this projection credible? Years

  9. Life Expectancy 2 • Average Male Life Expectancy Now 80 – Was 66 In 1948 • Male Age 65 = 17 Years Life Expectancy • Female Age 65 = 20 Year Life Expectancy • But Healthy Life Expectancy Just 13 Years And 15 Years Respectively • Life Expectancy Varies By Social Class/Location • Life Expectancy And Healthy Life Expectancy Are Separate Issues

  10. Life Expectancy 3 • Male 65 Cohort Life Expectancy Forecast To Be 25 Years By 2051 • Females 28 Years • Population Aged 80(+) To Grow From 2.8 Million In 2008 * To 5.8 Million In 2033 * To 10.6 Million In 2083 • Number Of People Over S.P.A. Will Increase 32% By 2033 • But Number Of Under 16s Will Only Increase By 10% • Who Is Going To Pay?

  11. Life Expectancy 4 • DWP research suggests male life expectancy increased by 44 days in the last year • 939,000 people over State Pension Age today will live to be 100 (currently 12,400) • In 2081 there will be 22,000 adults aged 110 or over • Nearly 30% of today’s children will live to 100

  12. Life Expectancy 5 • And It Could Get Even More Interesting • Who Would Want To Take A Bet? • Life Expectancy Assumptions Could Go Seriously Wrong

  13. The Implications • 1 In 2 Men And 2 In 3 Women Will Need Higher Dependency “Care” • Long-Term Care “The Elephant In The Room” • Public And Private Pension Systems Cannot Support A 30 Year “Retirement” From An, Effective, 35 Year Working Life – They Were Not Designed To Do So • We Need To Re-Think “Retirement”

  14. Policy Responses • Raise State Pension Age • To 70, Then Index To Life Expectancy • Current Proposals To Little, Too Slowly • We’ll All Need To Work Longer... • ...And Employer Attitudes Will Need To Change: How Do We Support Older Employees? • State Retirement Benefit System Requires Reform... • To Provide Real Incentives To Save • Employees Will Use A “Mix” Of Retirement Funding Solutions

  15. Policy Responses 2 • Auto-enrolment into pension saving • Will 8% be enough? Will employees opt out in numbers? • Flat rate future state pensions – but what about today’s pensioners? • The battle to make pension saving attractive again – a tarnished “brand”? • Abolition of Default Retirement Age

  16. Conclusions • Employers Moving Away From Pensions, for now • Towards Other Reward Structures • Long-Term Care: How Do We Pay? Tax? • Auto-enrolment; compulsion soon? • How Much Longer For Tax Relief on Pension Saving? • But it’s not all doom and gloom; we are all living longer, healthier, more active lives than ever before, • But we do need to re-think “retirement”.

  17. Thank You malcolm.small@tisa.uk.com 07989 500771

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