Future Pensioners Face Different Reality to Their Parents

In Family, Protection by PCH Staff

The retirement experiences facing many generations of future retirees will be drastically different from those of their parents, according to a recent report entitled ‘The Death of Retirement’ by Royal London, the UK’s largest mutual life insurance and pensions company.

Under older-style final salary pension schemes the average contribution was around 20% of a person’s total wages. However, under the new automatic enrolment pension scheme the statutory minimum rate is barely one-third of this level.

Many employees today could find that they are unable to enjoy the same quality of life as their parents in their retirement years unless they begin saving significantly more now, or work well after they should have retired. It’s a reality that could have a positive effect on protection sales.

While the UK government decided to phase out the default retirement age of 65 and instead allow workers to choose when they want to retire, it is expected that many are still planning on doing so between the ages of 60 and 65. It may be the case, though, that they have to continue working into their 70s because they won’t be in a position financially to retire.

The report’s findings show that a person on average earnings aiming for a total pension pot worth two-thirds of their pre-retirement income, with inflation protection and a widow/widower provision, would need to keep working until they are 77 years old if they only contribute the statutory minimum.

It’s a similar situation for someone with an index-linked pension with no survivor benefits, who would need to work until they are 76, and for a level pension 73.

As pension contributions get spread over a longer period and the prevalence of 25+ year mortgages for people who are older increases, workers today will invariably have to change their longer-term plans.

Income protection becomes much more relevant as a population finds itself ageing and having to work past the traditional retirement age. For example, if an individual realises that it is very likely they will have to work past the age of 60, protecting their lifestyle gains greater significance.

With numerous research showing that older people are at greater risk of developing a critical illness, such as cancer, the importance of protection well into the retirement years should never be underestimated.

Many people will be of the mindset that they’ll continue to work even when they’re in their twilight years. The reality, however, is that they may find themselves physically unable to do so.

The bottom line is that even if someone finds themselves in a position where they can’t work, their mortgage payments and pension contributions will still need to be made. Such a period of sickness could end up having a detrimental impact on their retirement plans.

While retirement may seem a long way off for many individuals, the right planning now will undoubtedly afford peace of mind in later years.

The need for Income Protection has probably never been greater. People should consider how they would pay their bills if they were unable to work and their income stopped. To understand how exposed they are, people could take the Seven Families on-line test.


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