Although Patricia Hewitt, the Secretary of State for Trade and Industry, made clear yesterday that the Government was giving everyone the chance to work until they were 70, as opposed to saying they would have to work until then, there is little doubt of the direction in which we are being nudged: working longer and having a shorter retirement.
The case studies on this page bear out the findings of a recent survey by the Consumers' Association. It discovered that most people want to retire at 58 on a pension equal to three quarters of their final salary. But only a third think that they are saving enough, and they are the realistic ones: many others have wildly optimistic assumptions of how much they need to save to have what they regard as a comfortable retirement.
If they have made the maximum contributions towards their state basic and second pensions, they can look forward to £140 a week as a starting point in present-day money. Bear in mind that many retired people have paid off their mortgage and have no dependants, no commuting costs and no need to buy smart clothing for work, so outgoings should be much lower. On the other hand, if people dream of expensive pastimes, such as sailing round the world, then that £140 a week is not going to go far.
Robert Edge is a good case in point. Aged 32, he wants to retire in about 30 years. He is deeply suspicious of the pensions industry in the aftermath of the Equitable scandal. But he will have to save somewhere, and the best ways to save with tax relief are Individual Savings Accounts (Isas) and pensions. But Isas are limited to £7,000 a year and may be withdrawn in a few years.
An alternative is a Self-Invested Personal Pension (Sipp), which stockbrokers or financial advisers could arrange for him. This works like an investment wrapper, subject to a few rules such as not putting your house into it.
But it's never too early to start. A website by the Association of British Insurers and the Financial Services Authority, www.pensioncalculator.org.uk, lets you work out what you will get. It currently shows that if you contribute £100 a month for 30 years you will get an inflation-proof pension of just £49 a week plus a lump sum of £19,505. When you die your spouse will get a half-pension of £24.50 a week.
At least Mr Edge has time on his side. David Shipley is less fortunate. Aged 47, he is postponing retirement until 60 - but that still gives him only 13 years. His BT and private pensions look likely to pay him £16,000 a year, and he may be able to count on as much as £7,000 a year from the state.
But if he wants to increase his retirement income, he will have to save hand over fist. An extra £100 a month of contributions, even without a lump sum on retirement, will produce only a further £22 a week, or £1,144 a year. But if Mr Shipley could steel himself to work until he was 70, that £100 a month would produce a pension of £69 a week.
HOW THE REST OF THE WORLD FARES
Japan, the country with the world's longest-living population, has a mixture of government, employer and private pensions. The government-funded pension is a non-income-related one that covers all residents, Japanese or foreign. Now 96 per cent of the people over 65, the pensionable age, get this basic pension.
To qualify to an income-related pension, employees must make contributions for a minimum of 25 years. Premiums of 8 per cent of the employee's salary are paid by both employers and employees, and all firms with more than five employees have to participate.
Separate personal pension schemes are funded through private contributions. Due to Japan's economic malaise and an ageing population, government and employer funds will struggle to meet future payments. By 2025 28 per cent of the population will be over 65.
In france too the threat of an ageing population has provoked fierce debate. Legislation proposes public-sector workers have to work longer to get the state pension. That would rise from 37.5 to 40 years by 2008. By 2020, all employees would have to work for 42 years. Strikes against the increases have halted air and rail services, university and school lessons and government operations.
Jean-Pierre Raffarin's government has affirmed its commitment to the state system, but without the changes a deficit of £35bn is predicted. By 2025, 22 per cent of the population will be over 65.
Because its population is predicted to increase over the next 50 years the US is not facing the difficulties of Europe or Japan, although the proportion of workers to pensioners will decrease.
Many employees have private pensions and workers have to work longer before they qualify for the state pension. Under changes in 1983 and phased-in in 2000, the age at which pensions can be claimed ranges from 65 to 67. Anyone born before 1938 can claim at 65. Anyone born after 1960 has to wait until they are 67. By 2025, 19 per cent of the population will be over 65.
PUTTING OFF RETIREMENT - AND PUTTING OFF THINKING ABOUT IT
Robert Edge is 32 and works for City brokers in London. He lives with his girlfriend in Chadwell Heath, east London, and earns about £30,000 a year. They do not have children. His company does not have a pension scheme but Robert put £1,000 into a stakeholder pension last summer.
"I haven't really thought about pensions because retirement still seems a long way off," he said. "I should be thinking about it but there are just other things to spend my money on. The problem is that you see what has happened to companies like Equitable Life, and you wonder whether people will actually get anything.
"It's a difficult one - I don't want to be working for ever but I don't want to have to start putting lots of money away now."Reuse content