The UK Government is moving towards raising the age of retirement to provide a long-term answer to improving mortality levels, according to a report by Bacon & Woodrow.
The report – The Cost of Living – said that increased life expectancy and falling gilts markets had increased the cost of occupational pensions by around 80% over the last 15 years.
The report highlighted the potentially devastatingly negative effect on occupational pension schemes which was voiced by NAPF chairman Peter Thompson at the annual conference earlier this month. The report said: “You don’t have to be a mathematical genius to appreciate that an increase in life expectancy from 15 to 20 years has a big effect on the cost providing a pension.”
Thompson said that the retirement age needed to increase to compensate for the increased life expectancy and falling gilts markets. The report reached a similar conclusion. “For some schemes the contribution rate needed to support future service benefits may need to go up by 2% or even more of pensionable salaries. The long-term answer must be to raise the age of retirement. Implicitly government thinking seems to be progressing along these lines.”
Figures in the report showed that between the late 1980s and the early 1990s life-expectation of a 65-year-old male increased to 15 years.
The report said: “In recent years the trend to a longer life expectancy has accelerated in a way not previously anticipated.” Actuarial mortality rates have increased over the last 10 years by up to 25%. By 1999 data indicated that such a person’s life expectancy had risen to almost 20 years and by 2040 the figure is set to have increased further.
The government has made tentative steps to relieve the issue of mortality rates and the impact it is having on occupational pensions.
Last year a Cabinet Office report – Winning the Generation Game – concluded that older people should be more valued in the workplace. And a working party set up earlier this year by the Department of Education and Employment and chaired by Margaret Hodge is looking at the issue of age discrimination and the impact on the retirement ages being increased.
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