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Could you work until age 75?

Ed Monk

Ed Monk - Fidelity Personal Investing

How do you picture your life at age 75? Whatever it looks like, I’ll bet it doesn’t include getting up and going to work.

None

This weekend the press was full of rumours that the Government was considering a rise in the State Pension age to 75, which would result in exactly this prospect for many people. The suggestion was made by a think-tank called the Centre for Social Justice and would see the pension age rise to 70 by 2028 and 75 by 2035 in a bid to save the Government up to £182bn.

Increases to the State Pension Age should not come as a shock - the age is already scheduled to rise from its current level of 65 to age 68 by 2039 - but the weekend’s proposals would see it rise dramatically further and faster to a level that is likely to horrify most people.

Which is why I don’t believe it will happen.

Even at the currently-scheduled age of 68, there is a big question about how the workforce will adapt, in particular those people who have worked in physically demanding jobs which cannot be performed at such a ripe old age. Then there’s the fact that any such move would be political kryptonite for any government. Who wants to be the Chancellor known for driving septuagenarians out to work?

So if it’s so outlandish, why bother discussing it? Well, even if these rumours don’t come to pass they can give signals as to the Government’s direction of travel on policy, and will often be the forerunner for less dramatic changes it does go on to enact.

In the case of pensions, the Government is unlikely to be considering any more increases to the state pension age (the last ones were finalised as recently as 2017), but having these sorts of stories flying about is useful if you’re planning other changes that will make the system less generous. They remind everyone how expensive pensions are for the Government and how they will get even more expensive in the future as more people hit retirement and go on to live to older ages.

This means there will always be pressure to cut costs from the system, which is why the role the State Pension performs is likely to change in the future. It will still form the bulk of retirement income for many people, of course, but there will also be many people who will want to stop work several years before their State Pension becomes due - with private savings plugging the gap.

This is a significant challenge but there’s plenty you can do, whatever your age or level of saving, to maximise your pension saving in preparation.

If you’re contributing to a workplace pension, make sure that you are maximising any help that your employer offers. Many companies will match what you are paying, up to a certain level, so make the most of it.

Beyond that, try to increase your contributions if you can. A Fidelity tool can help you see what a big difference paying in just a small amount extra can make.

For example, a 30-year-old today earning £30,000 could contribute an extra 1% of their salary and then retire at age 68 with an extra £58,273 in their retirement fund. This example assumes that wages will grow by 3.75% and that the return on invested contributions is 5% after fees, which is not guaranteed.

More on pensions

Important information The value of investments and the income from them can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

 

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