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Retirement At 70 More Likely Than Ever

LONDON: June 23, 2004 Young employees will need to work even longer if they are to rely on a State Pension according to a new analysis of Government Population Projections by Aon Consulting. For state benefits to remain as affordable as they are today, the Government will need to increase the State Pension Age (SPA) to 70 by 2030.

However, as average life expectancy increases, accompanying figures show that by delaying retirement by 5 years (typically from 65 to 70) a person's standard of living in retirement can be improved significantly.

According to the Government Actuary's 2002-based population forecasts, the ratio of the working age population (18 to 64) compared to those over the State Pension Age (65) was 3.88 (i.e. 3.88 people of working age for every person of pension age). This ratio is projected to decline as the population ages, to under 3.0 by 2022 and under 2.5 by 2031.* (See graph below)



Aon's analysis predicts that the ratio in 2031 would return to similar levels today (i.e. just under 4) by increasing the retirement age by 5 years to 70.

Under new proposals, the Government already seems to be seeking to encourage later retirement by offering lump sum payments to those electing to defer drawing their state pension until 70. For a single person deferring their basic state pension from 65 to 70 they would receive a lump sum of perhaps £30,000. The size of the lump sum on offer highlights the major difference in cost between retirement at 65 and 70.

For members of company pensions the decision to delay their retirement can also be advantageous. By delaying retirement by only a few years, employees can also see dramatic increases in the size of their pensions.

Paul McGlone said "The main point is if you can work longer then you will earn more and have a higher standard of living in retirement. A member deferring retirement from a company final salary scheme by five years will typically see their pension increase by up to 50% as a result. For anyone who can finance their day to day expenses through continuing employment between 65 and 70, perhaps through part-time work, this option may be the best way of securing a better standard of living in retirement."

"For members of money purchase schemes, the same principles apply, although members would remain exposed to risks such as market movements and further increases in life expectancy, which may make annuities still more expensive."

- Ends -


Notes to editors
*The Government Actuary's 2002-based Population forecasts project, amongst other things, the population broken down by age bands.

About Aon Consulting
Aon Consulting is a leading human capital consultancy, helping organisations of every size to attract and keep the employees they need. We advise on all aspects of employment, including health-related insurance and risk; employee compensation and pensions; human resource strategy planning; job design and change management; and staff assessment and legal issues.

Aon Consulting is a division of Aon, the UK’s largest insurance broker and provider of risk management services, a major force in reinsurance and the UK human capital consulting market.

Aon Consulting Limited is authorised and regulated by the Financial Services Authority.

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