Retiring at 71: How to prepare for and prevent an increase in the UK retirement age

For decades, the retirement age in the UK stood firm at 60 for women and 65 for men, eventually equalizing at 66. Now, a recent report by the ILC (International Longevity Centre) suggests that UK workers may not be able to retire until they reach 71. Their findings are based on the number of workers for each person who retires (the old age dependency ratio), and how that situation will likely worsen in years to come. This shift towards a later retirement age reflects three key factors:

• an ageing population
• the economic consequences of an ageing population
• health and longevity

Let’s take a closer look at how each of these factors contributes to the need to increase the retirement age.

Why might the UK retirement age be raised to 71?

The ILC report claims that the UK state pension age should be increased to 70 or 71 by 2050 to ensure that there are sufficient workers. Alarmingly, when the ILC factor in the number of young people who don’t enter the workforce until after a university education, the need to increase the retirement age to 71 happens sooner, in 2040.

Here are the three main factors that have led to this situation.

An ageing population

An ageing population means that a larger proportion of the population is in the older age brackets. Typically, this is due to longer life expectancies and declining birth rates.

Research by the ONS (Office for National Statistics) and CIPD points to the fact that a massive drop in the number of workers under the age of 30 by 2025 will result in a growing demand for older workers to fill job vacancies and a smaller UK workforce.

The UK’s ageing population therefore means an increased number of retirees as people live longer, a shrinking workforce as birth rates drop, and a shift in the balance of older versus younger workers.

Economic considerations

The current UK pension system relies on contributions from the working-age population. However, as the number of retired people grows, so too does the strain on public spending. This, coupled with a shrinking workforce, creates challenges for the pension system.

The balance between workers contributing to the pension system and those drawing from it must always be tipped towards economic stability. However, a smaller workforce means fewer people working and paying taxes to fund a growing number of pensioners.

Health and longevity

In the UK, a growing number of people are living into their later years, which has significant implications for:

• social services
• healthcare
• the workforce
• the housing market
• pension systems

Pension systems, designed for shorter retirements, are now under pressure to fund longer post-work lives.

How to prepare for or prevent a rise in retirement age

The reasons for an increased retirement age aren’t altogether surprising. Awareness of the shortfall in sufficient younger workers to replace those heading into retirement, increased longevity, and the fact that many Western countries are experiencing a shrinking population and workforce support the need to increase the retirement age or make major changes now to stop that move.

However, it may still be possible to prevent a retirement age increase to 71 or at least prepare for it. The key players in this will be the UK government and businesses. Here are the actions they could take to remedy the situation or soften the blow.

Government response

So how can the UK government prevent an increase in the retirement age to 71 or prepare for it?

Prevention

One way to address the UK’s ageing population is to create policies that support families and encourage higher birth rates. This isn’t about forcing people to have babies. Instead, the improved welfare of families and children, including the cost of rearing a child, should be the main focus. Higher birth rates will ultimately lead to a larger tax-paying workforce.

The UK government could also adjust the pension system to be more sustainable. For instance, the government could extend the earnings calculation period, revise the pensionable earnings cap, and move from a pay-as-you-go system to a fully funded system.

One major issue of raising the retirement age to 71 is that some workers may not be healthy enough to still work at that age. However, the government could provide incentives for workers who are still healthy and choose to work longer to remain in employment. This would replace the need to increase the retirement age.

Preparation
If the retirement age is eventually raised to 71, one concern will of course be the health and well-being of older workers. The government could alleviate this concern by introducing initiatives to improve the population’s overall health and fitness. At the same time, inequalities in life expectancy and health should be addressed, for instance, for workers from disadvantaged backgrounds and individuals with disabilities.

Further actions that could soften the blow of an increased retirement age include:

• introducing legislation that makes it easier for older individuals to work flexibly
• providing incentives for workers to contribute to private pension schemes
• regularly reviewing and adjusting pension policies to ensure that pension funds are sustainable without placing a heavy burden on the working population

Business practices

Businesses need workers and their processes are of course affected by the productivity and well-being of their employees. Unfortunately, businesses can’t prevent a retirement age rise without government intervention, but they can support their workers should the worst happen. Businesses can help their workforce through an increased retirement age by:

• increasing the availability of flexible working, whether that’s working from home opportunities, hybrid working, part-time hours, or a four day week
• providing retirement planning advice and resources for employees
• concentrating on employee well-being, for instance, by providing gym memberships, counselling services, stress management workshops, team building exercises, and opportunities for personal development
• upskilling older employees so that their skills remain relevant
• investigating how business practices can support an age-diverse workforce

Wrapping it up

It may still be possible to prevent the retirement age from surpassing the current target of 68, but not without intervention by the UK government. Businesses can also play their part by collaborating with the government.

The prospect of the UK retirement age increasing to 71 brings with it a range of implications for individual workers, businesses, and society at large. With an ageing population, economic pressures, and increased health and longevity, the need to adapt our approach to retirement is clear.