The 100-year Life: Are you prepared?

As the saying goes, “You work hard, you play hard”. We all want to live a long and fulfilled life, and that includes being able to enjoy our retirement years to the full. However, as we all begin to live longer, concerns have been raised over the Government’s ability to fund the futures of our ageing population.

Life expectancy has increased by 36 years since the UK state pension was introduced in 1908 (Source: The Times) whilst data suggests that one in three babies born today in the UK will live to celebrate their 100th birthday (Source: The Times). Yet the retirement age has barely changed. The concept of our ‘national insurance’ system was that each generation of workers would support the previous generation once they retired. When the system began there were roughly four workers for every retiree; now there are between two and three. As longevity increases, this ratio will fall further.

Despite Government efforts to close the gap, by increasing the state pension age and introducing auto-enrolment, many experts fear that by the time today’s young people reach retirement age, the state may no longer be able to help. Savings plans such as pensions were introduced when the typical retirement may only last a decade or so. Today, someone retiring at 65 might reasonably expect to live for another 30 years. In short, financing a longer life is going to require more savings.

With the state pension age set to rise to rise to 68, research suggests that someone in their 20’s would need to start saving 10 percent of their annual income in order to save enough money to live comfortably to the age of 100 (Source: The Times). Fortunately, the introduction of auto-enrolment has increased the chances of making this achievable – from 6th April 2019, employee contributions rose to 5% and employer contributions to 3% – a steep increase in some people’s eyes but a great way to boost your retirement fund.

For example, for a 30-year old earning £20,000 a year, these new contribution figures would accrue £1,600 a year in their pension pot, which could grow to more than £200,000 in current money terms. If you can achieve a 7% annual return on your pension, an extra ten years of investing can more than double your pension pot (Source: Adviser Points of View).

Nathan Mead-Wellings, Director at Finura says: “Sadly, the reality is that many of us are poorly prepared for living longer. The rising costs of living, inflation and economic pressures can mean that putting money aside for our future falls down the list of priorities. For each year that we delay saving for retirement, the more we will need to contribute from our earnings later in life and some may have to delay retirement. Welfare state aside, there are plenty of opportunities for individuals to formulate their own private pension plan via a blend of different investment options. Seeking advice from a financial adviser can help you to make the most of your money, particularly if you are self-employed and do not benefit from being in an auto-enrolment scheme.”

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Sources: https://app.independent.co.uk/2019/02/26/the-welfare-state-is-collapsing-but-if-you-start-now-you-could-save-1m-2/content.html
https://www.thetimes.co.uk/static/are-we-financially-equipped-for-a-100-year-life/
https://www.schroders.com/en/uk/tp/markets2/markets/will-our-money-last-us-to-100/
https://www.adviserpointsofview.com/2019/04/staying-in-or-opting-out-of-auto-enrolment-what-is-better/