State Pension Age 70 By 2040

State Pension Age 70 By 2040.

Lord Adair Turner, the former financial regulator chair (FSA), has made various suggestions in a speech last week at a think tank meeting in Westminster last week that there should be even more radical changes to the pension system in the UK.

It was Lord Turner who oversaw work place pension changes that are now being rolled out across businesses in the UK with larger companies first and then phasing in to all smaller companies by 2017 to offer workplace pensions paid into by both employers and employees.

Lord Turner suggests that pension reform should go even further:

State pension age should be increased to 70 by 2040.

Compulsory pension contributions to workplace pensions by both employees and employers should be significantly increased.  The current levels of workplace pension contributions:

Minimum contribution levels will be phased in between October 2012 and October 2017.

• October 2012 to September 2016 - total minimum pension contribution of 2% of qualifying earnings with at least 1% from the employer, 0.8% employee and 0.2% tax relief.

• October 2016 to September 2017 - total minimum pension contribution of 5% of qualifying earnings, with at least 2% from the employer.

• From October 2017, total minimum pension contribution of 8% of qualifying earnings, with at least 3% from the employer.  Meaning workers paying 4% into a pension + 1% tax relief and employers paying 3% giving a total of 8% pa.

Comment

There is no doubt that an element of pension saving compulsion is required as people do not save enough for retirement and the objective is clearly to avoid pensioner poverty.

That said, we are not sure the solution is forcing ever higher contributions that 8%.  Our thought process is simple, by increasing wealth in retirement, all this does is actually move the benchmark for price inflation.  Demand for goods and services increases as more pensioners have money to spend meaning that prices will rise.  In simple terms, nobody is really better off.

Perhaps, the real objective is for people to have built up greater pension pots meaning more money has been saved to fund care in old age and reduce the burden on the state as the population ages.