PEOPLE MUST accept the need to work longer if they want to aspire to a reasonable level of pension in retirement, a UK expert in the area has said.
Former Labour pensions minister Lord Hutton said failure to confront the inevitable would lead to sharp falls in pensions for all or the passing of a legacy of misery for coming generations.
Speaking in Dublin yesterday to a pensions forum in Eversheds, Lord Hutton said the problem was that “what people are aspiring to [in retirement income] and what they are preparing for are two different things”.
“We’re not putting enough in to realise the aspirations we naturally have.”
Lord Hutton, who last year published reform proposals for public sector pensions in Britain, said the single greatest factor impacting the pensions market now was increased longevity, with people’s retirement funds having to stretch over a longer period than had been anticipated.
“We’ve all got to save, we’re going to have to save more than we used to, and we’re going to have to work longer than we might like to.”
Economists, he noted, state that you have to match the increases in longevity with increases in the state social security pension age.
“That’s the only way you can contain and manage the costs of an increasingly elderly population,” he said, conceding “there are huge challenges in doing that”.
Working longer was the fairest way of addressing the situation, he said. “I think that is the least serious price we can pay for holding on to our belief in dignity in retirement.
“If we aren’t prepared, as a society, to even contemplate that then I cannot see a solution to this other than our pensions being a lot less than they currently are and this is approaching the issue from the wrong way of the telescope.”
With final salary or defined benefit pension schemes on the way out, stakeholders need to focus more on how to better frame the defined contribution pensions sector.
“We might be able to hold on to them [DB schemes] in the public sector – I hope we can – but, generally, if the problem is the lack of saving in the private sector, then it’s going to have to be DC that does the heavy lifting.
“And right now I cannot say DC schemes are doing well enough to merit the sort of confidence people should have in them.”
