RETIREMENT is no longer a fact of life. These days it’s a privilege, reserved for those who had the good sense to think ahead and make a plan. Thinking’s only half the battle, though. You have to do something about it.
There are many good reasons why we should be forward-thinking about our retirement from a young age.
Various developments around pensions and population growth clearly show that retiring in the 21st century presents a whole clutch of new challenges our grandparents didn’t have to face.
To show why you should pay attention to your pension saving today, we’re going to look at how those challenges are not just local – they are a worldwide phenomenon. As we face into the age of pensioner poverty, if we ‘go compare’ our situation with other countries, we’ll see our problems are global.
Mind you, there’s only limited comfort in knowing you’re not alone in a sinking lifeboat.
First of all, thanks to medical advances and the NHS, we are living longer than ever before. A century ago, we were lucky to make 60; today we can realistically expect to see 80.
The NI Statistics Office in Belfast say the number of over-65s in Northern Ireland is expected to grow by 25 per cent by 2026, and the number of over-85s by 40 per cent. That’s in just six years! You are particularly likely to see your ninth decade if you are female: women account for two thirds of over-85s.
However, longer lives mean longer retirements, and we must have better pensions to fund them. Let’s see what the future could hold for us, by looking at a country which is much further down this road than we are.
The land of the rising sun has long become the land of rising longevity. Japan has had an aging population for nearly a century now. On the Tokyo stock exchange, it’s no coincidence that the hot tip for investors a decade ago was a manufacturer of hip replacements. Japan’s population of healthy old, the ‘wellderly’, is skyrocketing.
So how has Japan dealt with funding the retirements of its exploding population of oldies? In response to increasing pressure on its pensions and benefits system, Tokyo has repeatedly raised the retirement age, cut benefits and raised taxes on the working population. (The US, incidentally, is experiencing similar difficulties). Japan also introduced a wage subsidy for anyone prepared to work on, and delay their retirement.
Does any of this ring a bell? It should, because so much of this is also happening here.
Our own state pension system is also creaking under the weight of less workers paying in, and more pensioners drawing out. It’s called ‘the dependency ratio’ and it’s predicted to fall from 3:1 (three workers paying in for each person drawing out) to closer to 1:1 by 2050. Some experts believe the state pension is unsustainable at current levels. If they’re right, no prizes for guessing the dire truth: in the future, it could be ‘no mons, no funs’.
And the process has already started. Our state pension age in Northern Ireland used to be 60 for women and 65 for men; this year it’s 65 years and three months for both women and men, and it’s set to hit 66 for both in October. It’s then set to rise to 67 after 2026, and to 68 after 2044. Our children or grandchildren born today might not get their state pension until they turn 70, in 2090.
The real value of looking across at Japan’s situation is that it offers clues to where we could be headed ourselves. If we continue down the Japanese road, what could lie ahead?
In Tokyo, those benefits cuts have seen employment levels for people aged 65 to 69 on a steep rise, with strong indicators that these people aren’t working on by choice.
Over-65s are estimated to have raised the country’s employment levels by about 2 million, since the economic recovery began in 2012. Good news for the Japanese economy, bad news for those who had hoped to put their feet up and retire. Many have found themselves trapped in the workplace, because they simply can’t afford to stop earning.
The harsh reality is that for a lot of us, both here and around the world, retirement is no longer a fact of life.
What about you? Are you hoping, one day, not to have to jump out of bed with the rising sun? Then it’s worth remembering our motto on our website: “Life’s better with a plan” - because today’s retirement climate is going to get a heck of a lot more blustery, over the next 50 years.
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com
