As a population we’re not getting any younger. According to the latest figures from the Office for National Statistics (ONS), it is projected that one in four people in the UK will be aged 65 years and over by 2050. Last year the number was one in five.
A long-term decline in fertility rates, coinciding with people living longer has radically changed the age distribution of the UK population and its workforce.
What’s more, retirement is not quite the cliff-edge it once was. Pension freedoms and changing attitudes towards employment have enabled people to work more flexibly and later in life. More and more people are staying in work longer and gradually reducing their hours, rather than quitting the workforce altogether and heading off to the golf course once they hit state pension age.
According to the ONS report, titled Living longer and old-age dependency - what does the future hold?, two in five older people will continue to work after reaching retirement age, meaning in the next 30 years the proportion of economically active pensioners is expected to double.
This is a boost for the country as those who keep working, even if it is part-time, are still contributing to the economy.
“Our aging population is frequently thought of as a concern, assuming that older people are being economically supported by younger people of working age, but increasingly this is not the case,” said Sarah Crofts of the ONS’s Centre for Aging and Demography. “People are working until later in life, continuing to contribute economically. International migration adds more people of working age to the population, which slows down the rate that our population is ageing, but it is the rising numbers of older workers that is having the most impact.”
Understandably an increase in the proportion of older people has implications for the economy, such as demands on the NHS and the state pension, as a declining workforce ultimately means less tax revenue for the Exchequer.
Of course whether this increase in older workers is due to choice or necessity is up for debate. With the state pension age gradually increasing for men and women to 67 by 2028, many people will be forced to work for longer if their retirement savings have not kept pace with inflation or changing state provision.
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Life expectancy has almost doubled in England and Wales in the 170 years to 2012, however more recently this has slowed down. The Institute and Faculty of Actuaries, which calculates life expectancy for the UK pension industry, now expects men to live for 86.9 years, down from its previous estimate of 87.4 years, while women who reach 65 are likely to reach 89.2 years, down from 89.7 years.
This leaves a question around the general health of the nation as it gets older. A longer life doesn’t necessarily mean extra years at full health. With signs that life expectancy is no longer improving, if the nation’s health is now starting to decline, the number of older people healthy enough to work later in life will decline too, meaning extra demands on social care, perhaps for longer than we would expect.
Whatever comes our way as we get older, ISAs and pensions offer a flexible way to invest for our future. With an ISA you can invest up to £20,000 each year and any investment returns will be shielded from income and capital gains tax. With a pension there are more restrictions but your contributions benefit from tax relief going in, meaning a £100 pension contribution effectively costs a basic-rate taxpayer £80, a higher-rate taxpayer £60 and an additional-rate taxpayer £55.
Both offer the flexibility required by a new generation of fully, or semi-retired people looking to maximise their later years.
The value of investments 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.