Why Save? – An ageing population and its pension needs

You don’t need to look at longevity statistics or plough through actuarial tables to know that we’re all living longer. Just take a look around and you’ll notice a greying society, one that’s doing so more healthily.

In 2009, the Office for National Statistics revealed that – for the first time – the numbers of over-65s in the UK was greater than the number of under-15 year olds…

Remarkably, estimates suggest that – in the 40 years to 2050 – the size of those teens will hover at around the same steady figure while the over-65s are going to – wait for it – double in size.  Even more shocking, the fastest growing section of the UK population is the over-80s whose tally is set to rocket from about 2.6 million in early 2010 to some 6.2 million by mid-century.

Rocked back on your heels? You should be.  Now let’s take a look at some other figures for the more immediate future.
There are approximately 10.3 million people (16.3% of the population as a whole) aged over 65 and just over 40.4 million of working age, roughly a ratio of 4 to 1.

By 2015, it’s estimated that there will be 11.6 million people (18% of the population) aged over 65 and just over 40.9 million of working age, roughly a ratio of 3.5 to 1.

So, by 2025, if the trends continue as forecast, we’ll be looking at 13.9million people aged over 65 (20.2% of the population) and 42.1 million people of working age, a ratio of 3 to 1.

Make no (old) bones about it: our population is getting older. Today’s projections underscore how an increasing proportion of the populace will be of retirement age and without savings – and these people will be dependent on tax levied on the working population to provide for them.

And future taxpayers won’t just need to pay the likely very low level of state pension, they’ll have no choice other than to pay a major proportion of the public sector pension commitment which is largely paid out of current tax revenues.

It is crucial that, as the numbers – and, vitally, proportion – of retired people in the population soar, that they have their own financial resources in place to support themselves.

Worryingly, millions don’t pay a penny into a company pension at all. In 2008, an Association of British Insurers survey on the state of the nation’s savings underlined how there were 7.9 million so-called “non-savers” – working people who aren’t saving any money into a pension at all.

At the same time, roughly 4.3 million “under-savers” were accounted for – those workers who are saving too little into a pension scheme and who won’t be able to provide any sort of adequate retirement income.

In particular, the City regulator the Financial Services Authority has expressed its eagerness to alert the ‘pre-retired’ – those workers within two years of a planned retirement – to socking great gaps between what they think they’re going to retire with and what they’ll actually likely to be heading for in their bank account each month.

It wants to raise the ‘warning!’ signal as early as possible yet for the sadly all too many with little in the way of savings, the options are not cheap…

They tend to be equity release to tap into the value of any property you own; the (often-limited) choice of carrying on work beyond the age of 65 if you can; the expense of ‘buying’ extra years in a final salary scheme; or – and this is impossible for most – delaying your receipt of the state pension.

If people simply don’t save enough, we’re in grave danger of hurtling towards a dystopia where we end up with a horribly over-burdened, disgruntled and highly-taxed working population struggling to support an increasingly impoverished and angry retired population.
This will be especially the case if, as is likely, state pensions likely shrink and the tax and social costs associated with an ageing population grow.

And, of course, as people get older they use greater resources in the NHS and bring other social benefits under greater financial pressure. There’s also no escaping the fact that, as people live longer, the need for long-term care – itself a deeply complicated and emotive financial concern – will rocket and balloon these costs even further.