Raising retirement age should not be an excuse to avoid saving for old age, experts warn

News - Living

Written by Ray Clancy

Tuesday, 12 January 2010 10:08

Abandoning a compulsory retirement age in the UK is a positive move but it could discourage people from saving early for their old age, according to experts.

The announcement from the Labour government to abolish the compulsory retirement age at 65 could pave the way for the elderly to work part time to supplement pension income.

While the change, also being considered by the Liberal Democrats, is seen by some as a way to address age discrimination, it would also be a way of tackling a looming pensions crisis.

‘This will bring a tangible benefit in that instead of being thrown on the scrapheap, people will be able to work part time. Society won’t be able to pay more and more out in pensions, people will have to save, but that is only part of the answer,’ said pensions lobbyist Ros Altmann.

According to John Lawson, head of pensions policy at Standard Life, while this would undoubtedly be a positive move, there is no substitute for saving early and an abolition of the retirement threshold should not encourage people to delay saving even longer.

‘The credit crunch and a reduction in market value means that the average fund, of around £25,000 will buy an income of only £1,000 to £12,000. People don’t recognise the benefit of compound interest over 25 to 30 years. Some people don’t start saving concertedly until they are over 40,’ said Lawson.

However, as well as buying today’s savers a few extra years, Lawson believes the move would benefit those currently over 60. ‘People don’t want to be forced into redundancy on an allotted day and mostly big businesses will say there is a lack of skill. We’re going to have a large lump of skilled people leave work over the next 10 to 20 years if they retire,’ added Lawson.