tax incentivised savings association

Malcolm Small

Director of Policy

“Financing Retirement – History and the Policy Agenda”

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

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

The Current Landscape in the UK

• The Pension Tsunami

The Forward Outlook For Generations “X” And “Y” Is Not Good

GroupPersonalPensions

BabyBoomers D.B.

Schemes

Generation “X”

YOU AREHERE

- Have A Nice Day!

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?

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

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

Life Expectancy And Healthy Ageing: The Scale Of The Problem

Projected Principal Period Life Expectancy (ONS)

Is this projection credible?

Years

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

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?

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

Life Expectancy 5• And It Could Get Even More Interesting

• Who Would Want To Take A Bet?• Life Expectancy Assumptions Could Go Seriously Wrong

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”

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

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

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”.

Thank You

malcolm.small@tisa.uk.com

07989 500771